Considered as somewhat of a blunt instrument, the “divest and forget” approach to ESG investing is increasingly losing appeal among super funds as more focus on active ownership around climate issues.
Australian Ethical, an investment firm that operates both an APRA-regulated super and several managed funds, has an explicit ESG mandate and is very selective of its holdings, almost never investing in companies with questionable sustainability credentials, according to its chair, Steve Gibbs.
However, he said the firm still regularly engages with companies it doesn’t hold equity in. These engagement efforts do get knocked back sometimes, he conceded, but the important thing is to define what successful engagement looks like beforehand.
“[There’s] not much point to just have this engagement thing and write 100 letters to boards that get filed away under useless correspondence,” he told the Investment Magazine Chair Forum in Sorrento, Victoria.
“Taking banks for example and their financing of new fossil fuel projects – we don’t think that we can stop that in one year.
“But we do think that success would be… having good conversations around why they continue [to do that].”
CareSuper chair and City of Sydney councillor Linda Scott echoed the sentiment, saying that climate change is approaching “faster and more dangerously” than expected and that funds can no longer afford to separate managing climate risks from acting in the best financial interests of members.
“We don’t believe that on the spectrum of active engagement versus divestment, divestment is the only tool. It is a tool in a big toolkit,” she said.
However, she did add that funds will need to keep a clearer idea of when they want to achieve results with their engagement efforts moving forward.
“There is a timeframe that we must find a way to work with.
“We seem to have significantly underestimated how long we’ve got,” she said.
Christina Langby, who chairs natural resources sector fund Mine Super as well as the Coal LSL scheme, suggested funds keep their climate engagements’ end goal set on enabling an orderly transition, rather than eradicating fossil fuels, for example.
“We can’t divest from everything without a planned and effective transition, because I don’t think we want to go back to not having energy,” she said.
“We need to ensure that we invest in the transition from both a capacity and a just transition point of view, because there are going to be many regional areas that are going to be seriously affected by this.”
Jeremy Cooper, chair of the Conexus Institute* and former deputy chair at ASIC, questioned how smaller funds like Mine Super which have less capital to leverage can punch above its weight in big conversations like the energy transition problem. But Langby said climate issues are not meant for super funds to tackle alone anyway.
The trustee for Mine Super is associated with around seven other significant mining industry organisations, which Langby said complements the fund’s ability to engage where it has less share of voice due to being a small fund.
“No one wants to acknowledge they [the mining industry] are at the forefront of innovation. They are developing the technology to enable transition to happen, because they have to, because they know that they have a finite experience,” she said.
“I don’t think superannuation is the answer on its own [for climate issues]. It’s got to be part of a broader discussion,” she said.
In the centre of the active engagement discussion late last year is AustralianSuper’s campaign to block a takeover bid of Origin Energy.
The country’s largest super fund rejected the deal multiple times (while its peers like the Australian Retirement Trust voted in favour of the offer), suggesting that the foreign bidding consortium’s offer significantly undervalues Origin Energy and its potential in the energy transition.
CareSuper’s Scott said a diversity of investment views is “not unhealthy” and showed that funds are actively thinking through these issues, although she declined to comment specifically on the deal.
“In 2024, the idea that you can actually separate economics from climate investing to me is quite preposterous,” she said.
“I think it [discussion around the deal] was a positive sign. People are doing their analysis and that’s going to differ between funds from time to time. I don’t think that’s a terrible outcome.”
However, Australian Ethical’s Gibbs said there were some disappointments from both the bidding consortium and AustralianSuper’s behaviours.
“There was more disclosure on one side than the other, but they were both very poor in terms of communicating what they thought the future of Origin Energy looked like in a low carbon world,” he said.
“And yet, those sorts of discussions have to take place if we’re not going to fry.”
*The Conexus Institute is philanthropically funded by Conexus Financial, publisher of Investment Magazine.
