30 Mar 2020
Thank you to those members who have expressed an interest in UniSuper’s exposure to fossil fuel investment. We appreciate that this is an area of significant concern to many of our members. This letter sets out our approach in responding to these issues.
UniSuper is committed to delivering long-term sustainable returns for our members. With $85b1 invested across a host of industry sectors and asset classes, we play an important role in influencing those we invest with, in helping address climate issues.
We have an established track record of assessing and incorporating environmental, social and corporate governance (ESG) factors into our investment decisions. As an active owner and investor, we look at a range of factors in relation to every single investment we make. We always consider climate risk management, ESG disclosure and transparency, human rights in the supply chain, occupational health and safety, and executive remuneration. We choose to invest only when we are satisfied with this bigger picture.
Leading the way in responsible investment
Our work on ESG issues includes engaging with climate risks through direct dialogue with the companies in which we invest. In 2018 we signed on to Climate Action 100+, a five-year investor-led initiative to ensure the world’s largest corporate greenhouse gas emitters take critical action to align with the goals of the Paris Agreement. We joined the Investor Group on Climate Change in 2009, and work with a range of peak industry bodies (including the Australian Council of Superannuation Investors, Investor Group on Climate Change and Responsible Investment Association Australia among others) to drive ESG-related initiatives.
We’re proud to be Australia’s largest superannuation investor in sustainable investments, with more than $6b1 of members’ money invested in 3 sustainably labelled options. Each of these options screens out alcohol, gaming, weapons, and fossil fuel producers and explorers. We know how important these issues are to our members.
While we always have the option to divest companies that do not live up to our ESG expectations, we generally do so only after our efforts to engage fail to achieve desired results. We have unparalleled access to the Board and Management of companies we invest in, which gives us the ability to encourage responsible environmental and social practices, supporting resilience and positioning those companies to thrive in a low carbon world.
As a result of engagement by UniSuper and by like-minded investors, and in response to growing public awareness and opinion, we have been pleased to see a dramatic improvement in the number of companies in our portfolio that report on emission targets. Close to 80% now report on emission targets, up from 45% only two years ago, in 2018. This significant increase partly reflects our and other active investors’ demands for this reporting from companies.
The companies that we invest in that are exposed to fossil fuels are often diversified businesses. Consequently, it’s important to “look-through” the company to capture the proportion of the business that relates to fossil fuels. Using this methodology our fossil fuel exposure represents about 5% of our total portfolio, with less than 2% invested in fossil fuel exploration and production. Our exposure to thermal coal is around 0.3%, largely through diversified miners such as BHP, a leading Australian company committed to transitioning to a low carbon footprint. Thermal coal now represents less than 3% of their revenues. Most of our fossil fuel exposure is actually in pipelines that transport gas, such as APA.
Committed to delivering long-term sustainable returns
Given the progress many companies are making towards meeting Paris Agreement goals, it is our view that wholesale divestment is not the best approach to encouraging climate action, nor the right approach to delivering the best financial outcome for our members. We have a fiduciary duty, and for our Defined Benefit members specifically we have a duty to meet the explicit benefit commitments embodied in the DBD. Our infrastructure investments in APA (gas pipelines), Transurban (roads) and Sydney Airports play a key role in enabling this. Even so, if a company’s business model is not aligned with a low carbon future, divestment is an option we may choose to exercise.
We are proud of our track record of delivering market-leading returns for you, our members, and we’re very conscious of doing this in a responsible and sustainable way. Thank you for engaging with us around these issues.
1Figures correct as at February 2020.