Early adopter investments pay off for Commonwealth Superannuation Corporation customers

This is branded content for Commonwealth Superannuation Corporation.

With $59 billion funds under management (1), and holding responsibility for the retirement savings of more than 680, 000 customers, Commonwealth Superannuation Corporation (CSC) takes great pride in growing its customers' retirement savings in a robust and responsible way.

A sustainable transition to a new energy regime has been touted as one of the biggest opportunities for investors. CSC was an early investor in this opportunity set and over the last five years, has more than doubled its assets under management for renewable projects.

Today, CSC has more than $1 billion invested in innovation, technology and development platforms focused on new renewable sources of energy and the infrastructure required to make them firm and scalable.

These investments are reducing emissions in the real world, not just paper portfolios, by 251,000 tonnes per annum (2). This means, for CSC customers, their super fund's early adopter principles are already paying off with financial returns and genuine climate impact.

"We all know that investing is competitive. So, the best returns come from identifying opportunities well before others do. We recognised the needs of the energy transition early, investing first in windfarms," says Alison Tarditi, Chief Investment Officer at CSC.

One of the earliest investors in renewables, in 2014/15, CSC invested in what was then the largest windfarm in the Southern Hemisphere, Macarthur Windfarms. With renewables now a highly sought-after investment amongst institutional investors, CSC sold the asset in March 2022, returning a gross profit of 14 per cent to its customers.

"This was achieved because we recognised the structural tailwinds to renewables before others did, and were therefore able to make a very low risk investment at a relatively low price per megawatt of generation capacity. Our competitors who have followed us into renewable energy have been assuming greater risk and paying up to 68 per cent more than we did," Ms Tarditi said.

CSC has since recycled that profit into an investment with global renewable asset developer Akuo (3), as well as several other renewable-development platform investments.

"Strong appreciation in the price of these assets, together with our own deepening domain expertise, has enabled us to recycle that capital into higher returning development platforms, platforms that add to net new supply of renewable assets across solar, wind, biomass and hydro," Ms Ms Tarditi said.

Of course, the sole purpose of a super fund is to protect and grow the retirement savings of its customers, and this is something CSC takes into account when investing in new energy initiatives.

"These businesses are valuable to our customers' retirement outcomes because their financial returns are attractive, largely insulated from short term economic conditions, and underwritten by skilled management teams able to execute well," Ms Tarditi said.

"They're also impactful in the world beyond our customers' portfolios, because they're adding to the stock of renewable assets, not just trading existing ones."

By being a first mover, CSC has continued to capture strong financial returns for its customers because it considers not just cyclical and operating risks, but also the system risks that result from business activities, or system risks that may impact business activities longer-term.

Poor management of technology, environmental, social and other strategic risks become monetised into value eventually, so companies that are alert to these issues and manage them well are more likely to deliver sustainable financial returns.

As well as renewable energy projects, investments within CSC portfolios that actively contribute to higher-quality economic activity include data centres, biotech and pharmaceuticals, healthcare services, telecommunication satellites, affordable and reliable access to water and sanitation, energy and education.

"We were the first Australian superannuation fund to recognise that data centres would be a critical form of infrastructure for a technology-driven future. We moved early to invest in Canberra data centres, originally based in Canberra and now with extensions across Australia and across the Strait into New Zealand," Ms Tarditi said.

In 2016, the CSC team spotted a trend towards centralisation of data storage in efficient, purpose-built centres. The team proactively sourced this investment from within its high-quality-investment manager network, rather than waiting for the marketplace to eventually recognise the value of this strategy.

"This investment has achieved exceptional growth performance of 46 per cent per annum since we acquired it back in 2016. We've more recently made additional complementary data centre investments in Asia and the US to leverage what is now a domain expertise for us and take further advantage of the unremitting advance of digitalisation," Ms Tarditi said.

"We also partner with skilled specialists like Blackstone Life Sciences to invest in promising new medical innovations. Anthos Therapeutics is just one example. Its development of novel anticoagulation medication is improving the lives of a large population of patients with a broad range of cardiovascular and metabolic diseases. The health collaborations we're making are resilient to business cycle dynamics, and impactful in the real world beyond finance. I'm most proud of these."

Risk control is paramount to CSC's investment strategy, especially to support early investments into innovative opportunities with an objective and robust governance framework. This is reflected in CSC's ability to not steer away from risks but to manage them holistically, while respecting the very important difference between risk and genuine uncertainty.

"Investment risk is generally discussed in statistical terms. Unlike this concept of risk as volatility, genuine uncertainty - which has been the hallmark of the recent period not just for investors but for policy makers as well - is not so black-and-white. In my view, uncertainty is the real risk because it involves surprises and unknowable outcomes," Ms Tarditi said.

"Soothsayers and stargazers predict, investors prepare. A far less glamorous role unfortunately for me, but considerably a much more reliable service. So, instead of forecasting macroeconomic outcomes, we analyse the performance of our customers' portfolios under multiple different but plausible future scenarios to find their vulnerabilities and then to proactively address them."

It's this attention to detail at the granular level, and the comprehensive stress-testing and scenario-based analysis that enables CSC to confidently hunt for innovative investments-opportunities that align to the best financial interests of their customers, and also contribute to building a better world for them to retire into.

"Amidst all the uncertainty, there's also a plethora of innovation occurring. It's occurring across health, new energy storage and transmission, digital security, robotics, automation, water and waste reduction to name just a few," Ms Tarditi said.

"There's every chance that one or more of these will be genuinely disruptive, enabling the world to leapfrog some of the challenges that today feel insurmountable. Our customers' capital is working precisely to enable this innovation."

For more information about Commonwealth Superannuation Corporation's investment philosophy visit www.csc.gov.au

This is branded content for the Commonwealth Superannuation Corporation.