For many Australians, the future of their retirement savings is inextricably linked to the future of the planet. Parents like Winnie Fu, looking at their young children, express a deep desire for their superannuation funds to actively contribute to a sustainable world, even if it means re-evaluating traditional investment priorities.

"I look at how the world is destabilising around us; we need to do everything we can to try and make the world a better place for the next generation," Ms Fu stated. Her recent discovery that her super fund, AustralianSuper, holds a significant stake in Whitehaven Coal prompted her to consider switching funds. "If we do not have a stable society, if we do not have a livable climate... we cannot have a good life just because we have more money."

Ms Fu is not alone. A growing number of Australians want to see a larger portion of the nation's staggering $4.5 trillion in retirement savings directed towards renewable energy projects. Yet, translating this ambition into widespread investment presents a complex challenge for the superannuation sector.

The Current Investment Landscape

An analysis by environmental advocacy group Market Forces, examining direct investments made by Australia's 30 largest superannuation funds since January 2020, revealed a substantial gap. While $99 billion had been invested in 514 renewable energy projects nationally, Australia's top 30 funds contributed a mere $771 million of that total, representing just 0.8 per cent. Interestingly, Canadian pension funds reportedly invested more in Australian renewable energy projects, committing $1.2 billion in the same period.

Further data from the group last year highlighted a stark contrast: Australia's leading super funds invested more than three times as much in companies with global fossil fuel expansion plans compared to their backing of clean energy initiatives.

Mary Delahunty, chief executive of the Association of Superannuation Funds of Australia (ASFA), noted that 29 out of 30 major super funds have "exposure" to renewable energy assets, often held indirectly. "Funds are always looking for good opportunities to produce appropriate risk-adjusted returns for members, and renewable assets have proven to be some of the really good performing assets in the portfolio so far," Ms Delahunty explained.

AustralianSuper, for its part, maintains its commitment to achieving net-zero emissions by 2050 across its investment portfolio. The fund clarified that its investment in Whitehaven Coal is partly due to the company's metallurgical coal production, a critical component in steel manufacturing.

Positive examples do exist, such as Rest Super, which owns the Collgar Wind Farm, Western Australia's largest. However, industry sentiment suggests a collective desire to increase clean energy investments, always balancing this with the fiduciary duty to act in members' best financial interests.

"When we ask Australians what they want from their super funds, they're very clear they want their super funds to make every dollar that they have work as hard as they possibly can," Ms Delahunty affirmed. "Many Australians understand that can also come in the form of nation-building activities because not only does it give monetary return, but it can also give the double dividend of a social return."

Navigating Investment Barriers: The Performance Test

A significant hurdle for super funds considering large-scale renewable energy investments is the federal government's superannuation performance test. Introduced five years ago to safeguard retirement savings and ensure accountability, the test sets strict benchmarks for superannuation products. Failing the test carries serious consequences, including mandatory member notifications and, for repeated failures, an inability to accept new members.

While the test has successfully weeded out underperforming funds since its inception in 2021, calls are now growing for its evolution to better support investment in emerging asset classes like renewable energy projects.

Simon O'Connor, Director of the Sustainable Finance Hub at the University of Melbourne, points out a fundamental inconsistency. "Under the current performance test, super fund returns are examined against their peers over the short to medium term," Mr O'Connor said. "This is fundamentally inconsistent with what we're trying to achieve as we transition Australia's economy, where we need to invest in assets that are going to change our economy over decades."

He added that the benchmarks used often look "backwards to the way our economy is structured in the past and today," making funds more likely to invest in familiar, traditional infrastructure like toll roads, airports, and utilities. Renewable energy infrastructure, being a younger asset class with an evolving policy environment, is often perceived as riskier and requires a different investment approach.

Government Review and Future Outlook

Treasurer Jim Chalmers has indicated that the performance test is here to stay, with any reforms aimed at strengthening, not watering down, its objectives. "If we can unlock more investment that will help Australians in areas like energy and housing, at the same time as members get the best returns, of course we'll consider that," the Treasurer stated.

Mr O'Connor believes that thoughtful changes to the performance test could indeed unlock more capital for renewable energy, though he cautions it won't be a "silver bullet." "It removes one of the big impediments and indeed one of the big excuses from some funds for not investing any more in Australia's future economy," he explained.

Beyond the performance test, broader headwinds are impacting investment in large-scale renewable energy projects. The Clean Energy Investor Group's (CEIG) annual survey revealed that 77 per cent of investors believe Australia's investment environment has worsened over the past year. Less than 10 per cent feel Australia is on track to meet its ambitious 82 per cent renewable electricity target by 2030.

"We have high construction costs, particularly for wind; we have long planning processes... we have delays in transmission," noted CEIG CEO Richie Merzian. He also highlighted the federal government's introduction of a new capital gains tax on international investors, who currently comprise a significant portion of renewable energy investment.

Market Forces' analysis underscores the scale of the challenge, suggesting Australia's top 30 superannuation funds have currently invested only 4 per cent of the renewable capacity needed to achieve the country's 2030 climate goal. Mr O'Connor also stressed the importance of policy certainty across state and federal governments to reassure superannuation fund investors and encourage the safe deployment of capital into the clean energy sector, underpinning critical infrastructure development.