Aware Super’s Newmarch on climate and ESG

Aware Super is a founding member of the Climate League 2030 initiative to reduce emissions in Australia; how do climate considerations play into PE investments at Aware Super?

Aware Super has long held the belief that material unmitigated climate impacts will be value destructive to our private equity investments. When we invest with PE managers, we take a close look at their ESG policies, and more importantly, practices, with a keen focus on how much attention is paid to identifying climate risks in due diligence of target companies, as well as how companies are managed to minimise or mitigate their exposure either directly to climate change or indirectly through shifting climate-related policies or carbon prices.

We recently committed as a cornerstone investor to Australian mid-market PE fund Adamantem Capital Partners Fund II, which has committed to net-zero emissions targets for all its portfolio companies. We will be a member of the fund’s Emissions Reduction Committee, where best practices will be shared amongst members.

Aware Super is also developing a methodology to measure the emissions of the PE portfolio to drive initiatives that support our portfolio-wide emission reduction targets.

According to our LP Perspectives 2021 Study, 12 percent of LPs would relax their ESG policy for fund investments due to covid-19; do you feel this year’s events have changed perceptions around ESG?

Aware Super has not relaxed its ESG policies as a result of covid-19. We have continued to increase our focus on engaging with managers to establish value-creative policies and practices in their portfolio management. Whilst we believe there could be potential for acceleration of sustainable practices as a result of covid-19 if companies choose to extend remote working and reduced international travel, our concern is companies and consumers may believe the pressure to reduce emissions has abated and take it less seriously.

What are Aware Super’s aspirations for its private markets portfolio in 2021?

We are hopeful a change in US government will see the US rejoin the Paris Agreement, encouraging other countries to do the same. We have also seen governments take climate considerations into account in their covid recovery plans, such as prioritising green infrastructure. We recently committed to two grid-connected battery storage investments in the US which we believe will be well positioned as the political tide changes and states have increasing confidence in long-term national climate policy.

With markets continuing to remain buoyant and, in particular, venture capital markets showing no sign of slowing down, our primary focus for 2021 is to ensure we are finding the most inefficient parts of the private equity markets that can sustainably outperform the public markets. We envisage continuing to focus on mid-market buyout funds, early- to mid-stage venture and small market growth funds around the world.

We remain cautious as to how the pandemic will affect different regions’ ability to resume steady economic growth, and how continued shutdowns can slow dealflow. Therefore, we are increasingly cautious about dry powder and increased J-curves. We are also monitoring our existing portfolio more regularly and are cautious to see what happens to those companies that have been propped up by stimulus when that rolls off. Overall, however, our private markets portfolios have been well positioned throughout the pandemic and those companies that were affected by shutdowns saw a quick bounce back where those shutdowns were lifted.