Shane Edwards, head of Asia Pacific at MSCI. “The industry has moved beyond portfolio optics to capital allocation with intent,” says Shane Edwards, head of Asia Pacific at MSCI.“Rather than simply excluding higher-emitting companies to lower a portfolio’s reported carbon footprint, investors are staying invested in companies with a credible path to lower emissions, because that is genuinely where engagement and capital can shift outcomes.”For Australian superannuation funds, that creates a practical challenge.Climate objectives have to sit alongside fiduciary obligations, benchmark performance requirements and the need to control tracking error. Climate investing is moving from setting targets to working out how those targets can be incorporated into investments spanning thousands of securities.From exclusions to transitionAware Super, one of Australia’s largest profit-for-members superannuation funds, manages more than $235 billion for 1.3 million members. The fund introduced carbon-constrained equity benchmarks in 2020.At the time, its approach focused on reducing exposure to the highest-emitting companies because emissions data was available while credible corporate transition plans were less common.By 2025, the information available to investors had changed. More companies were publishing decarbonisation targets and transition plans, giving asset owners additional ways to judge whether a business was preparing for a lower-carbon economy.Aware Super subsequently moved more than $50 billion of its public equities investments to a transition-based carbon reduction benchmark developed with MSCI. The benchmark went live across its passive and systematic equities portfolio in November 2025.“A company’s current carbon footprint only tells part of the story,” says Agnes Hong, Aware Super’s head of public market equities.“We wanted an approach that also captures where a business is heading and whether management is taking credible steps to position the company for a lower-carbon economy.”Cutting the reported emissions of an investment portfolio and assessing the transition taking place in the wider economy are different tasks.Companies in emissions-intensive industries may have some of the largest decarbonisation programs under way. Excluding them on the basis of current emissions alone can overlook differences between businesses with credible transition plans and those making little progress.“The transition to a lower-carbon economy will require significant change across many industries,” Hong says.“A forward-looking framework allows us to recognise companies making credible progress, even when they operate in sectors that have traditionally been viewed as emissions intensive.”MSCI’s own climate research reflects the broader move towards a wider range of measures. Its guide to climate metrics examines how investors can use different measures for emissions exposure, transition risk, portfolio alignment, engagement and scenario analysis, rather than relying on a single carbon measure.Super funds face benchmark testThe difficulty for a large super fund is turning that analysis into investments without losing sight of its obligations to members.Australian funds operate under performance benchmarks and regulatory scrutiny. Moving away from a standard benchmark can introduce tracking error, making the design of climate-aware benchmarks an important part of implementation.Agnes Hong, Aware Super’s head of public market equities. “Members expect us to take climate risk seriously, but they also expect us to remain disciplined investors,” Hong says.“Any climate framework we adopt must be capable of being implemented at scale, measured rigorously and justified through the lens of long-term member outcomes.”For Aware Super, applying the new approach meant establishing a consistent framework across more than $50 billion in public equities managed by internal and external investment teams.The task involved more than selecting companies according to their emissions. The fund had to consider the quality of transition data, diversification, risk and the extent to which its investments departed from the benchmark.Edwards says investors are also becoming more selective about corporate transition claims.“The market is already pricing transition risk, whether investors are ready for that or not,” he says.“We have seen real repricing as capital moves toward companies with business models built for the transition, not simply those with the best-stated climate targets. The question for investors now is being able to tell the difference between a company that talks about transition and one whose business model is actually built to survive it.”That assessment requires data and analytics capable of distinguishing between stated ambitions and evidence of progress. Benchmark design provides a way of incorporating those assessments while retaining the underlying investment objective.Getting down to individual assetsA company’s registered headquarters says little about the exposure of the factories, warehouses, ports and other facilities on which its operations depend.“Location-specific insight is increasingly important for investors trying to get a real read on physical risk, which doesn’t live at a company’s headquarters, but wherever that company actually operates: the factory, the port, the warehouse,” Edwards says.MSCI tracks 4.5 million locations across 780,000 companies against 31 physical climate hazards, according to Edwards. It combines AI and large language models with data collection, geospatial engineering and real estate expertise to analyse those locations.For institutional investors, the point is not simply to accumulate more climate data. It is to make the information specific enough to inform investment and risk decisions at both asset and portfolio level.“And this isn’t a future problem,” Edwards says. “Wildfires, floods and severe storms are already disrupting operations today, with an estimated USD 1.3 trillion in financial exposure on the table.”Investors can now assess corporate transition progress and physical asset exposure in much greater detail.Putting climate into the portfolioMore detailed data still has to be turned into investment decisions.“Setting climate goals is relatively straightforward,” Hong says.“The real challenge is translating those goals into portfolio construction decisions across tens of billions of dollars of assets while maintaining consistency, transparency and investment discipline.”For Aware Super, that required collaboration between investment and responsible investment teams and external partners, alongside data and governance processes capable of applying the methodology across multiple portfolios and managers.Large superannuation funds cannot treat climate analysis as a separate exercise sitting alongside the investment process. Any approach has to work across billions of dollars of assets while preserving diversification, controlling tracking error and allowing performance to be measured.Headline emissions figures alone cannot answer those questions. Investors now have more information about corporate transition plans, physical hazards and individual assets, but that information still has to be translated into decisions about what belongs in a portfolio and at what weight.For Australian super funds, the next phase of climate investing will be judged less by the ambition of the target than by what happens when that target meets the portfolio.To find out more, please visit MSCI.General advice only. Consider if this is right for you. Issued by Aware Super Pty Ltd (ABN 11 118 202 672, AFSL 293340) trustee of Aware Super (ABN 53 226 460 365).