UniSuper says climate engagement with firms is working

The $100bn industry super fund UniSuper says 40 of its top 50 Australian investments have set targets aligned with the Paris Agreement.

UniSuper chief investment officer John Pearce. Picture: Jane Dempster

The $100bn industry superannuation fund UniSuper says engagement with companies over climate change targets is working, with 40 of the fund’s top 50 Australian investments setting targets aligned with the Paris Agreement.

The figure compares to 34 last year and a further five have pledged to set targets by the end of 2021.

UniSuper chief investment officer John Pearce said decarbonisation of the economy would be one of the most significant investment themes for at least the next decade, and that the corporate sector’s response to the challenges and opportunities of climate change was playing a major role.

“There is no doubt in my mind that the collective action of large investors like UniSuper has played a significant role in driving that behaviour,” Mr Pearce said.

“We strongly believe that engaging with companies and helping them progress toward these targets represents a more meaningful contribution to achieving the Paris goals than divestment – which effectively transfers fossil fuel exposures.”

The main objective of the Paris Agreement is to limit global warming to below 2C compared to pre-industrial levels, and to pursue efforts to limit the temperature increase to 1.5C.

UniSuper’s disclosure came as the world’s leading climate scientists warned last week that the prospect of limiting global warming to 1.5C will be out of reach within 12 years at current rates of greenhouse gas emissions, in a report that found it was now “unequivocal’’ that human activity was heating the planet.

While many major Australian businesses have rushed to sign up to net zero emissions by 2050, some experts have said the climate report meant those goals would need to be brought forward by 10-15 years.

Climate consultant and investment firm Pollination Group, which has advised the NSW and Victorian governments on policy, said the focus would now be on net zero by 2040, “if not 2035”.

“I think it’s going to be 2035,” Pollination Group founding partner Martijn Wilder said.

“That means if you’re a company director or an investor, and you’re looking at investing in assets, you have to look at the risk from the perspective of having to phase out those assets by 2035.”

UN Secretary-General Antonio Guterres said the report was a “code red’’ for humanity and the Paris Climate Change accord’s global warming limit of 1.5C was “perilously close’’.

UniSuper considers alignment with the Paris Agreement, in aggregate, across its entire investment portfolio.

By 2050, the fund expects that all economies and companies around the world will have achieved net zero emissions, so the creation of a net zero portfolio is not expected to pose any constraints on Unisuper’s activities.

Across the entire Unisuper portfolio, 66 per cent of investments now have Paris-aligned targets, up from 51 per cent a year ago.

About 0.4 per cent of the portfolio is exposed to fossil fuel extraction, with overall fossil fuel exposure down to 2.55 per cent from 5.05 per cent last year.

Also, 26 per cent of the fund is, or will be, carbon neutral or net zero by 2022, including the $2.6bn direct unlisted property portfolio.

Mr Pearce said progress had been achieved by divesting some positions, eliminating holdings in companies that generate more than 10 per cent of revenue from mining thermal coal, and not adding to existing positions as the portfolio has grown.

Across its diversified investment options, UniSuper has also maintained carbon intensity at least a third below market benchmarks, while a shadow carbon price has been applied to the fund’s top 50 Australian holdings to highlight the pressure points in the portfolio.

UniSuper has seen strong demand for its three dedicated ESG investment options, which have been designed to avoid companies involved in the production, generation, or transmission of coal, oil or gas, with over $12bn in funds under management across these options.

Originally published as UniSuper says climate engagement with firms is working