Australia: More super funds must put their money where their climate mouths are .

This piece first appeared in Financial Review.

Australia’s superannuation funds are among the world’s largest and most powerful institutional investors. With more than AUD4 trillion under management, they are stewards of the financial future for tens of millions of Australians and increasingly vocal about their role in managing climate risk.

Many funds have declared climate change the most significant long-term threat to portfolio performance. Yet their capital allocations tell a different story. Specifically, their exposure to deeptech climate technology — where the breakthroughs needed to decarbonise hard-to-abate sectors are being developed — remains negligible.

This is more than an oversight. It’s a strategic failure. And certainly a topic for discussion at the Albanese Government’s looming Productivity Summit.

Electricity decarbonisation via renewables is well underway. But clean power alone won’t get us to net zero. Aviation, shipping, heavy industry, agriculture, and advanced manufacturing remain stubbornly high emitting.

These sectors account for nearly 30 per cent of global emissions and cannot be decarbonised with solar panels and wind turbines. They require new technologies: carbon-neutral fuels, low-emission industrial processes, carbon capture at scale, and next-generation materials and systems.

In short, we need climate innovation. And that means we need capital — specifically, patient capital with the ability to fund high-risk, high-reward technology development over 5–10 year horizons.

Australia has world-class climate science and engineering talent. What it lacks is sufficient domestic capital willing to back these technologies at the early and growth stages. This is where super funds should be leading.

And let’s not forget member interests, especially younger members. Millennials and Gen Z are rightly climate-conscious, as they will have to live in a world dealing with the consequences. As a result, they are more willing to support bold, long-term investments that address systemic challenges like climate change.

By allocating capital to early and growth stage climate technologies, super funds can meet the dual mandate of delivering strong long-term returns while responding to the clear preferences of their younger members - who will be the primary beneficiaries of these investments over the coming decades.

Some claim that regulatory barriers — particularly the ASIC performance test — limit their ability to invest in early-stage or illiquid assets. While the performance test isn’t helpful, it is a red herring to suggest it is the dominant reason for this failure. How else can you explain Hostplus’ leading position in investing in Australian early stage innovation.

Super funds already hold significant allocations to infrastructure, private equity, and property, all of which carry long lock-up periods and valuation complexity. There is no structural reason why a small, diversified allocation to deeptech climate funds cannot fit within a broader alternatives portfolio, particularly when managed by experienced investors who know how to stage risk, deploy capital efficiently and have a track record of returns from the sector.

While the Association of Superannuation Funds of Australia and the Super Members Council have called for change to support early-stage innovation, a lingering reticence to commit to these vital investments remains.

Meanwhile, global peers are moving decisively. Canada’s CPP Investments has deployed over C$20 billion into energy transition and climate solutions, including early-stage technologies. Singapore’s Temasek has launched GenZero, a dedicated platform for decarbonisation investments, and is an anchor in climate tech VC funds globally.

Europe’s AP7 and ABP have made direct commitments to venture and growth-stage climate investment strategies. These are investors who understand that mitigating climate risk means investing in solutions, not just avoiding the problems.

Ironically, many super funds are now investing in AI and hyperscale data centre infrastructure, both of which are driving a sharp uptick in global energy consumption and carbon intensity. As emissions surge on the back of AI growth, the case for investing in offsetting technologies becomes not just logical but urgent.

Australian deeptech climate investors are already backing the companies building the technologies we’ll need to reach net zero. But we cannot scale them alone. If the superannuation industry is serious about climate risk, it must move beyond ESG rhetoric and start deploying catalytic capital. The opportunity is real. So is the need. And the time is now.