The role and timing of superannuation funds’ powerful proxy advisers has come under the spotlight with the recent AGL demerger.
The $68 billion superannuation fund for the health and community service workers, HESTA, broke ranks early – on May 25 – to publicly oppose the demerger, while other superannuation funds cautiously awaited the advice of their proxy advisers.
HESTA chief executive Debby Blakey explained 21 days before the vote would be taken at AGL’s AGM, that a stand-alone coal fired power plant company would make it harder for Australia to transition to a low carbon future and wasn’t in the best interests of HESTA’s members.
Their stand lines up with HESTA’s promise to members that the fund is: “The gutsy advocate driving meaningful change for generations to come”.
HESTA’s bold move was a significant win for Mike Cannon-Brookes and contributed to AGL pulling out of its demerger plans. HESTA holds 0.34 per cent of AGL and Blakey is also the president of the Australian Council of Superannuation Funds which is an influential position with its industry fund members. She is also a director of the Association of Superannuation Funds of Australia.
Mike Cannon-Brookes has strong views on how AGL – one of Australia’s largest energy companies and Australia’s biggest greenhouse gas emitter – can cut its emissions footprint to line up with the Paris Agreement and offer new products to customers.
Superannuation funds increasingly like to talk up their environmental, sustainable and governance (ESG) investment credentials as members are demanding strong action on climate change with their retirement savings.
UniSuper, for example, has $13 billion of fund members’ money in three dedicated ESG investment options – sustainable balanced, sustainable high growth and global environmental opportunities – making it the largest manager of ESG in Australia.
Funds such as UniSuper have a publicly available document on voting that explains how it voted on every company issue. UniSuper’s responsible investment report for July to December 2021 is a 177-page document and highlights among the issues important to the fund are climate resilience, sustainability reporting the energy transition.
But when it came to AGL’s demerger, superannuation funds sat on the fence about how they would vote, often waiting for information from their proxy advisers about how the demerger sits with their principles and investment.
According to Rainmaker Information’s review of Australia’s largest superannuation funds that publicly disclose their portfolio holdings, eight superannuation funds held AGL including AustralianSuper, CareSuper, HESTA, Aware Super, Mine Super, Qantas Super, AMP Super and BT Super, as reported in online ESG publication, Sustainability.
With the exceptions of Mine Super and Qantas Super, all of these are signatories to the UN Principles of Responsible Investment. Those signatories pledge to be active owners and incorporate ESG issues into their ownership practices. Potentially HESTA should ultimately have been joined by these other funds.
The intense media coverage of the demerger of Australia’s biggest carbon emitter, AGL, meant that HESTA’s stand-alone contribution to the outcome was arguably stronger than if it had waited and gone to a vote on June 15.
Indeed, the early silence from uncommitted funds could be misinterpreted as potential support for the demerger.
After AGL’s merger blew up on May 30, Aware Super revealed it had been selling down its AGL shares over the past 18 months in line with its climate change portfolio transition plan that was drawn up in 2020. In fact, Aware Super’s last shares in AGL were recently sold by one of its active equity managers.
Following the demerger announcement, Aware said, “We welcome the announcement that AGL Energy has withdrawn its demerger proposal”.
“We particularly note the stated intention of the AGL Board to decarbonise AGL Energy’s business ‘at the fastest rate possible’ and expect to see a robust and credible Paris-aligned climate transition plan.”
Aware says it has been engaging with AGL over the long-term and been advocating for the company to provide investors with a strategy and targets that are aligned to limiting warming to 1.5 degrees.
“The announcement provides more time for AGL to further consider the expectations of all shareholders in both creating long-term value and operating consistent with the target of limiting global warming to no more than 1.5 degrees.”
Aware Super says it does not believe these objectives to be mutually exclusive.
“On behalf of the hundreds of thousands of healthcare workers, first responders and workers in every community across Australia who make up our membership, we encourage AGL’s leadership to pursue these outcomes with renewed vigour. We believe it will be necessary for the investment community – whether directly or through collaborative initiatives such as CA100+, of which Aware Super is a member – to engage with AGL to ensure an orderly transition to net zero by 2050 considering the impact on employees and the community.”
Retail fund managers were also tight lipped about how they would vote. One of AGL’s largest shareholders is Vanguard which owns 5.35 per cent. While Vanguard said it would be voting on the demerger, it did not say which way. Vanguard had met with AGL’s board on multiple occasions over the years, particularly to discuss the energy company’s falling share price.
One major UK institutional shareholder, Martin Currie, which champions ESG investing did take an early stand. Martin Currie called AGL’s board to deliver the news that it would be voting against the demerger on the Friday before AGL called it off and announced there would be four resignations including the chairman and CEO.
A spokesperson for Martin Currie said that it did use proxy advisers and while it listened to their views, it didn’t necessarily agree with or follow their advice.
It does raise the question of whether more superannuation funds need to be bolder and more prompt, on these sensitive issues.