We believe climate change and the transition to a low carbon economy will pose investment-related risks, which is why we’ve been identifying and considering these risks for over a decade as part of our investment management and decision-making process.
Securing our members' futures requires understanding our exposure to climate risks and opportunities. Our financial commitment to maximising our members’ financial outcomes remains our top priority.
Managing climate risk
As an active, long-term investor, we expect the companies we invest in to have a proactive approach to reducing emissions, an understanding of the climate risks embedded in their assets/businesses and transparent disclosure explaining their activities and actions.
Our approach to managing climate risk
Active ownership
Company engagement:
- ASX focus
- High levels of engagement regarding climate risk management
Proxy voting:
- Review climate related resolutions
Member choice
Providing options for members wanting to avoid fossil fuels:
ESG integration
Climate risk analysis:
- Investment due diligence
- Portfolio/Options
- External managers
Ongoing monitoring:
- Portfolio exposures
- Carbon footprint
Collaboration and communication
Communication:
- Member engagement
Collaboration:
- Investors: IGCC - Investor Group on Climate Change, ACSI -Australian Council of Superannuation Investors, Climate Action 100+
- Specialists, consultants/ analysts, industry advisors, Government bodies
Thought leadership:
- Advocacy
- Regulatory change
Long-term 2050 target
Net zero emissions by 2050
We’re committed to achieving net zero absolute carbon emissions in our investment portfolio by 2050, in alignment with the Paris Agreement.
By 2050, we assume there’ll be the necessary breadth of companies and sectors operating at net zero to enable construction of sufficiently diversified portfolios.
2021 and 2030 targets
We’ve also set short and medium-term targets that support our longer-term 2050 target.
100%
45%
We’ll target an absolute reduction in emissions at a portfolio level by 2030 where practical (with net zero unlisted property and infrastructure portfolios by 2030). We’ll also allocate capital to companies needed to achieve the ultimate goal of net zero.
1 material, active, in-house Australian investments
How we'll meet our targets
Investing: factoring decarbonisation as a core investment theme in all our portfolios
- Applying a shadow carbon price to material investments that we expect to hold for the medium to long term.
- Excluding companies that generate greater than 10% of their revenues from thermal coal mining.
-
See more on our thermal coal miner exclusion process
Our climate change position statement is underpinned by a set of guiding beliefs and principles; and one of our beliefs is that thermal coal for electricity generation is the fuel most at risk in the transition to a low-carbon economy. A result of this energy transition might see mines close before the end of their economic life (known as asset stranding).
In response to this risk, we use 2 methods (our compliance framework) to screen out certain companies with over 10% of revenues associated with thermal coal mining (excluding companies classified as service providers or utility companies):
- Investment manager restrictions – Our internal and external investment managers are not permitted to invest in companies that derive more than 10% of their revenue from thermal coal mining.
- Compliance monitoring – Our custodian will use a blacklist, created with data from an external provider, to identify stocks and companies that exceed the 10% revenue from thermal coal mining revenues threshold.
Limitations
Reporting on underlying business units can be inconsistent, even for those companies that do report.
While we aim to be as transparent as possible, information gaps and timing differences mean sometimes revenue reports are not as precise as we would like. For example, significant merger and acquisition activity may result in significant increases or decreases to a company’s thermal coal revenues.
While we continuously refine our processes, some of the known limitations of our compliance framework are:
- the coverage of the companies assessed by the external data provider
- the accuracy of information provided by reporting companies (potentially leading to estimations of revenue)
- the currency of the blacklist and data provided by the data provider.
We may choose to retain an interest in companies that have more than 10% of revenues associated with thermal coal mining but are well progressed in the sale or wind down of those mines (which would bring them in compliance with the restriction).
The thermal coal exclusion will not apply to existing unlisted investments.
Read more about our approach to climate risk and our investments in our Climate risk report (PDF, 2.3MB).
Engaging: working with companies that we invest in to encourage rapid decarbonisation of their operations and supply chains
- Discussing emission reduction targets and strategies with 100% of our portfolio1 companies at management and board levels.
Collaborating: working with climate-focussed action groups
- Member of management committee of Investor Group on Climate Change (IGCC) to drive research, advocacy and engagement with other Australian institutional investors.
- Participating as a lead investor for Climate Action 100+.
1 material, active, in-house Australian investments
Case studies: Climate disclosures and targets
As an active long-term investor, we expect the companies we invest in to understand the climate risk within their businesses and disclose the activities (e.g. analysis, strategy and planning) they’ve undertaken in order to reduce or mitigate these risks.
This includes disclosing their current position in line with the recommendations of Task Force on Climate-related Financial Disclosures (TCFD), potential risks and opportunities, and setting climate-related targets (e.g. carbon emissions) and timeframes.
-
See the Woodside Petroleum case study
Engagement
We’ve been encouraging Woodside to improve sustainability disclosures for several years and have been pleased with the improvements in its disclosures with respect to its oil and gas operations.
However, we remain concerned with Woodside’s lack of disclosure on how it assesses its business resilience and growth projects under various carbon constrained scenarios. Ahead of this year’s AGM, we met several times with the Chair before deciding to vote for the shareholder resolution that asked for targets aligned with the Paris Agreement.
We supported the shareholder resolution as it was not clear how the company planned to address the climate risks associated with its product.
Outcomes
- Woodside has improved its sustainability disclosures.
- We supported the shareholder resolution asking for Paris-aligned targets.
- There was 49.5% shareholder support for the resolution.
Our investment strategies won’t necessarily be appropriate for other investors. This is not intended to be an endorsement of any of the listed securities named above for inclusion in personal portfolios.
Our Climate risk report includes details on:
- governance
- strategy
- member choice
- risk management
- climate risk in our investment options.
News and insights
In 2018 we signed on to Climate Action 100+. This is a 5-year investor-led initiative to ensure the world’s largest corporate greenhouse gas (GHG) emitters take critical action to align with the goals of the Paris Agreement.
Professor Brendan Gleeson, Director of the Melbourne Sustainable Society Institute at the University of Melbourne, isn’t afraid to tackle some of the most contentious topics in political circles—environmental and urban policy. We spoke with him about the lay of the land, and how we might better manage it.
We put our best foot forward when it comes to investing with a conscience, but what’s driven this? We take a look at the rise of responsible investing and how we're managing it.