Super returns at risk from transition delay: HESTA

The CEO of the $83bn super fund says Australia can’t afford to ‘kick the can down the road’ on the energy transition.

The boss of one of the nation’s largest superannuation funds says Australia must move “very quickly” in the coming five years if it is to meet its 2030 green targets, with super returns under threat if the climate transition fails to ­accelerate.

Speaking to The Australian, HESTA chief executive Debby Blakey warned of the risk to the economy and super returns if there is a disorderly transition to renewables.

Australia faces the challenge of more than doubling its renewable capacity to hit Labor’s goal of 82 per cent by 2030, with the target behind schedule due to delays building new generation projects and the slow rollout of transmission developments.

“I think there’s significant risk of stranded assets. There’s a risk of a transition that is not orderly and that having a very significant impact on the economy, and the ability to deliver returns broadly,” Ms Blakey said.

“There are significant risks and that’s why we need to really drive credible strategies to transition to that low-carbon future. Because if we just pretend it’s not there and think we can kick it down the road, we feel we will impact the returns that Australians achieve from super funds like HESTA.”

Ms Blakey, who heads the $83bn industry super fund for healthcare workers, said Australia still wasn’t where it needed to be in terms of getting to net zero, but much progress had been made over the past decade.

“We have made enormous progress in the last 10 years and it’s important to celebrate progress. The conversations we’re having, the companies we’ve seen commit to net zero by 2050, the credible strategies that are being developed and the transition pathways are (all) outstanding.

“But there is so much to do, and there’s so much urgency to it that I think we need to progress very quickly in the next five years.”

HESTA has been a vocal activist investor about climate change, pushing companies such as Woodside Energy, Origin Energy and AGL Energy to speed up their transition plans.

But its shareholdings in these carbon emitters are minimal. With a stake of less than 1 per cent in Woodside, the fund earlier this year voted against the oil and gas major’s climate plan, arguing there was a “significant gap” in its transition pathway. It also put forward its own climate-friendly director candidates to Woodside.

Ms Blakey said the fund was comfortable maintaining small positions while taking an activist approach.

“We have never felt that a small holding means we don’t have an opportunity to use our voice and have a seat at the table,” she said.

“We invest in companies based on the return profile. We see that we can have a very strong voice even though we might have a small holding, because we are an institutional investor and we represent over a million members.

“These are not simple issues. When we engage with companies on their transition planning and their strategies, their capability to do that, we bring a very thoughtful, considered and yet very active ­approach.”

Billions of dollars have flowed out of environmental, social and governance funds in recent years amid investor fatigue about the ‘‘green’’ wave. Greenwashing and underperformance have tarnished sustainable investing but Ms ­Blakey said the long-term outlook was strong for clean energy investments.

“We believe we will get the best returns over the long term by thinking about capital allocation to new energy, thinking about how we support that transition to a low-carbon future,” she said.

“The language that’s coming out around returns, that is exactly the reason why we support strong action on climate change – because we believe that’s the way to deliver the best strong long-term returns for our members.”

While declining to comment on BHP’s failed $74bn takeover bid for Anglo American, Ms Blakey threw her support behind moves by miners to expand their critical minerals exposure.

“We’re very supportive of a company like BHP thinking about the future of mining and thinking about critical minerals and the role they play.

“Mining investments have a long lead time and specific capabilities. So to have strong global mining companies that are giving thought to the critical minerals of the future, we see it as outstanding,” Ms Blakey said.

“Like many investors, we believe critical minerals are going to be so important. When we talk about that orderly transition to a low carbon future, critical minerals will be absolutely imperative in that transition … we support global mining companies being very thoughtful about their role in the transition and in particular in the critical mineral world.”

HESTA’s activism extends beyond the climate challenge, with gender equality also front and centre for the fund.

With 13 per cent of its one million members – most of whom are women – set to retire in the coming five years, Ms Blakey is driving a push at HESTA to improve members’ financial literacy and engagement with digital advice tools.

BHP abandoned its $74bn takeover bid for Anglo American this week. Picture: William West/AFP

Close to a third of its members have used the digital technologies on offer, including its Future Planner tool, but Ms Blakey said more work needed to be done to build their confidence around retirement planning.

“Our members deal with complex situations every day in health and community services. They often manage very tight family budgets but they don’t feel confident about their financial future,” she said.

“There’s a real opportunity for us to help our members and to help women in Australia build financial confidence, to understand their financial situation and to bring those same problem solving skills that they demonstrate in their work every day to their own financial situation.”

Ms Blakey said the industry needed to shift its mindset if it was to help women better navigate the retirement landscape.

“We know women will have a different experience of retirement. They are going to live longer and have broken work patterns, and our research shows that one-in-four of our members will finish work earlier than expected for various reasons,” she said.

“So often, women who access trusted financial expertise discover they have more choices than they thought and can make a real difference to their financial position.”