Billions from super balances in jeopary if climate inaction continues

Delayed climate action could wipe hundreds of billions from superannuation balances by 2050, according to new analysis from Ortec Finance.

Australia’s political indecision on climate change has put the nation’s superannuation funds at risk of significant long-term losses, new research by Ortec Finance has found.

The report, applying Ortec Finance’s proprietary 2025 climate scenarios to the investment portfolios of the 30 largest Australian super funds, shows that if global temperatures exceed 3 degrees by 2100, portfolio returns could fall by as much as 38 per cent by 2050.

“Climate change is intrinsically linked to economic fundamentals and is disrupting the vital pillars of economic stability. The effects on GDP growth and inflation are structural, persistent and increasingly visible in economic forecasts,” said Doruk Onal, climate risk specialist at Ortec Finance.

The findings suggested that even short delays in policy action, such as five-year deferrals, could permanently lower superannuation performance. In a delayed transition scenario, average fund returns could drop 9 per cent by 2050, compared to an orderly transition that allows funds to exceed current expectations.

Under a high-warming scenario, where no new policies are introduced, Australia’s gross domestic product (GDP) is projected to sit 9 per cent below current expectations by 2050. Rising temperatures and intensifying physical risks, such as heat stress and flooding, would weaken productivity and drive higher inflation.

Contrastingly, an orderly transition could help the economy maintain growth through measures such as recycling carbon tax revenues to stimulate investment and consumption, according to the report.

The report warned that climate-induced inflation will erode household purchasing power and retirement savings. A high-warming future is expected to add 0.7 per cent to annual inflation by 2050, pushing it well above the Reserve Bank’s target range.

For retirees, this means “savings would buy less at the same time as investment returns fall”, the report noted. Under transition pathways with tangible progress, losses narrow to 9 per cent in the delayed scenario and 5 per cent under the most orderly transition.

The combined effect of lower returns and higher living costs creates a dual headwind for super funds. Portfolios are projected to fall 2 per cent by 2028 under a high warming scenario, 6 per cent by 2035, and 38 per cent by 2050.

For an industry currently managing $4 trillion, a 6 per cent cumulative nominal impact by 2035 could wipe $400 billion from expected asset values, reducing projected funds under management from $6.8 trillion to $6.4 trillion.

Under an orderly net zero scenario, losses are minimal and the total remains around $6.8 trillion.

“Climate change is systemic, but it does not impact all geographies equally. If superannuation funds are to mitigate climate risk, they must rethink strategic asset allocation to incorporate geographic variation,” said Maurits van Joolingen, managing director, climate scenarios and sustainability at Ortec Finance.

The report cautioned that home bias exposes Australian portfolios to disproportionate climate risks, including extreme weather events such as Cyclone Alfred, algal blooms in South Australia and catastrophic flooding in NSW.

By 2050, equity markets in Australia, North America, Asia and southern Europe are projected to underperform by between 41 and 54 per cent under high warming, while northern Europe faces a smaller 22 per cent decline.

Many physical risks, particularly those uninsurable or irreversible, remain under-represented in asset valuations, leaving super portfolios exposed.

“This report clearly shows that the immediate costs of transitioning to a low-carbon economy are significantly outweighed by the long-term physical impacts and escalating costs of continued climate inaction,” van Joolingen said.

“The future performance of Australian superannuation funds will depend on how decisively the world reduces carbon emissions: an early transition offers steadier growth and inflation, while a high warming future risks severe and lasting economic damage. The industry must plan for both possibilities.”