Investor Group on Climate Change submission on options to strengthen the superannuation performance test

The Investor Group on Climate Change (IGCC) has prepared this submission to provide comments on the Australian Government’s proposed options to strengthen the annual superannuation performance test. The IGCC supports the government’s objectives of removing unintended or distortionary barriers to investment, particularly in critical areas like climate solutions. This support is provided with the caveat that such reforms must not water down the fiduciary duties of trustees or compromise strong member outcomes. A credible and objective performance test that remains fit for purpose in a changing investment environment is considered essential for both superannuation funds and their members.

Fiduciary duty and the transition to a low-carbon economy

The transition to a climate-resilient, low-carbon economy necessitates capital flows at a scale that public balance sheets cannot meet alone. Institutional investors, including superannuation funds, asset owners, and insurers, manage the savings of millions of workers and are obligated to invest those savings to generate long-term returns. The IGCC asserts that climate change represents a material, systemic risk to these returns. Therefore, acting on climate is not a values-based choice but a matter of fiduciary discipline. In Australia, the superannuation sector is valued at approximately A$4.4 trillion as at March 2026, making it the world’s fifth-largest pension pool and putting it on track to become the second-largest by 2031.

The combined IGCC/AIGCC entity represents more than 180 investors managing approximately USD$46 trillion across the Asia-Pacific, including the retirement savings of more than 15.8 million Australians. The decisions made by these investors regarding capital flows shape the real economy at every level. The IGCC was established to provide a voice for these investors on climate policy matters, though it refers implementation practicalities to industry peak bodies such as the Association of Superannuation Funds of Australia (ASFA) and the Super Members Council (SMC).

Proposed benchmarks and regulatory oversight

Should the government continue with a benchmark-based approach to the performance test, such as options 1.1 or 1.2, the IGCC suggests that benchmarks must remain fit for purpose and be subject to regular, formal, and independent review. The IGCC supports recommendations to remove benchmarks from the regulations and establish them as an instrument of the regulator, specifically APRA. This would facilitate timely updates and ensure that the test remains relevant to the evolving investment landscape.

Barriers to climate-aligned investment

The IGCC highlights that while reforming the performance test is necessary, it is not the only barrier to greater investment in renewable energy. According to the State of Net Zero Investment 2026 (SONZ) report, the ‘Your Future Your Super’ test is the third most reported barrier, nominated by just under half of respondents—an increase of 14% from 2025. This ranks behind ‘policy or regulatory uncertainty’, which was reported by just over half of respondents.

The most significant issue remains the pipeline and scale of projects. Nearly 75% of SONZ respondents cited insufficient climate-aligned investment opportunities offering an appropriate risk-return profile as their primary barrier. Recent government moves, such as applying a retrospective capital gains tax (CGT) of up to 30% on international investment in renewable projects, may further discourage projects from reaching the operational stage. Superannuation funds typically look to invest at this stage, and there is no guarantee they will move into earlier, riskier development phases given escalating labour and material costs and approval delays.

Holistic policy levers and implementation

Reforming the superannuation performance test is not a ‘silver bullet’ solution. Other structural barriers remain, including the inclusion of stamp duty under ASIC’s RG97, which makes certain asset classes less attractive. Australia requires capital investment of up to $630 billion to meet its 2035 climate targets. While the superannuation sector is a significant potential source of capital, funds require time to evaluate their investment approaches based on member requirements and risk appetites.

The IGCC urges the government to consider changes to the performance test alongside other policy levers, such as the foreign investor CGT regime, the Capacity Investment Scheme, and the Future Made in Australia agenda. If the government proceeds with options 1.1 or 1.2, the IGCC strongly recommends that implementation be done on an optional and prospective basis only. This ensures that trustees can continue to prioritise member outcomes while navigating the whole-of-economy transition away from fossil fuels.