HESTA targets ASX-listed companies’ boards to comply with Paris climate agreement

HESTA wants to see Australian companies deliver a climate strategy, with targets “aligned to a 1.5C transition pathway”.

HESTA chief executive Debby Blakey. Picture: Ian Currie

The $68bn industry super fund HESTA is putting pressure on listed companies to commit to “ambitious” climate change goals, in letters to the chairs of all ASX 300 companies ahead of their annual general meetings.

The fund, which had a high-profile role in opposing AGL’s demerger plans earlier this year, has written to the chairs and boards of Australia’s top 300 listed companies, putting them on notice that their climate change strategies will be scrutinised at their annual meetings.

The fund is urging companies to commit to carbon reduction goals aligned with the 1.5 degree goal of the Paris Agreement on climate change.

The fund has also signalled it is prepared to cast votes on resolutions before AGMs to help achieve its stated goal of having 40 per cent women on boards and at senior executive levels and to pressure companies on whether they were doing enough to protect the natural environment.

“This decade is critical for managing a range of systemic risks that are relevant both to the companies we invest in and the overall management of our portfolio,” HESTA chief executive Debby Blakey said.

“Delivering good returns to our members requires a strong and stable economy and strong performance of our portfolio companies against their strategies,” she said.

“That’s why we’re encouraging management and boards of ASX 300 companies to be ambitious in their responses to systemic risks such as climate change, social inequality and the loss of biodiversity.”

HESTA chief executive Debby Blakey. Picture: Ian Currie

She said HESTA wanted to see Australian companies delivering “a verified climate strategy, with targets aligned to a 1.5C transition pathway”. “This should include careful consideration of the need to direct greater capital ex­penditure towards supporting a timely, equitable and orderly transition to a low carbon economy,” she said.

In an interview with the Australian, Ms Blakey said the upcoming AGM season would give shareholders a chance to assess how well companies were dealing with the risks of climate change.

The AGM season is expected to see an increase in resolutions at meetings around the climate change issue, including company-initiated “Say on Climate” votes on their climate change and ESG strategies.

Ms Blakey said HESTA was a long-term, active investor that believed it needed to engage with companies it invested in on issues that affected its membership.

She said the bulk of HESTA’s 950,000 membership were women who were working in health and community sectors and were in the front line of issues such as climate change and social inequality.

“In addition to posing a financial risk to the value of our members’ investments, climate change is also relevant to the work our members do in health and community services,” Ms Blakey said.

She said climate change was a “crucial focus” for the fund.

She rejected suggestions that some of HESTA’s membership might not agree with its high-profile shareholder activism on climate change and gender diversity on boards.

“We do a lot of research with our members, and we have a sense that they care deeply about these issues which we believe gives us a very strong mandate (to pursue these issues),” she said.

“We are also seeing a growing cohort of members who don’t work in the health and community service sector who are choosing HESTA as they are looking for a super fund with impact.”

Ms Blakey said she believed that the activist approach – speaking out on issues such as climate change and the need for gender diversity on boards and at senior management – was making a difference within corporate Australia.

She said some areas of investment involving high carbon emissions were excluded from HESTA’s portfolio, but the fund preferred to work with companies to “drive down their emissions and manage climate risk”.

“We believe the best way to do this is through active ownership. By continuing to own companies but by engaging actively on these issues,” she said.

This is the third annual letter HESTA has written to Australian companies, this year expanding engagement from the ASX 200 to the ASX 300.

In 2020, HESTA was the first major super fund to state an ambition to reach net zero carbon emissions across its entire investment portfolio by 2050.

It recently strengthened its interim emissions reduction target to a 50 per cent normalised emissions reduction by 2030, against a 2020 baseline.

Ms Blakey said HESTA would examine how the items up for consideration at annual meetings reflected “the importance of the (energy) transition challenge”.

She said this could affect its decisions on whether to support the election of individual directors.

Ms Blakey said HESTA would also be looking at what companies were doing to combat biodiversity loss. She said this had been identified by the World Economic Forum as the third-most severe global risk, after climate action and extreme weather.

She said companies should assess their operations and supply chains to see if they were threatening the natural environment.

This could include having supply chains which had adverse effects on the water supply.