Super funds divesting from fossil fuels before exhausting all engagement options to deliver for climate
The Australian share market is one of the most carbon intensive markets in the developed world. Despite the fact that superannuation funds across Australia have begun to set ambitious emissions reduction targets for their investment portfolios, they are executing these commitments in stealth—quietly implementing a divestment strategy that has not delivered real world emissions reductions.
These are the key findings of Cutting Carbon: what the rush to divest fossil fuels means for emissions reduction and engagement, released today by the Australasian Centre for Corporate Responsibility (ACCR).
The Report found that superannuation companies must play a more active role in engagement with the companies they are invested in prior to any divestment to ensure that all measures to support climate change action have been exhausted.
Of the superannuation funds that announced divestment from thermal coal companies in 2020, none publicly declared their intentions prior to divestment. One of the most important aspects of divestment is the signalling to other companies and investors. To date, divestment decisions by Australian investors have not had as much impact as they could have had, had they been transparent about the conditions which would result in an escalation to divestment, prior to the act itself.
Engagement and escalation should be pursued prior to any divestment of fossil companies in the form of:
- voting against directors or the remuneration report if the company fails to meet expectations;
- opposing corporate divestments of fossil fuel assets, and mergers and acquisitions, unless the ultimate owner is prepared to transition; and/or
- co-filing and/or supporting shareholder resolutions.
Furthermore, super funds must have a more robust public declaration mechanism for their investment processes, specifically regarding climate change engagement:
- Calculation of portfolio exposure to heavy emitting companies must be consistent and publicly available for all superannuation funds.
- When divestment is the primary approach through which portfolio decarbonisation is pursued, it should be named as such, alongside the implications (or lack thereof) for immediate emissions reductions in the real economy.
- Long-term net-zero portfolio targets must be supported by short- and medium-term targets.
Lead author of the report, Dan Gocher, Director of Climate and Environment, said:
“Investors are quietly abandoning companies that are proving ‘too hard’ to change, and failing to exhaust the tools available to change them. While they may be doing what is necessary to protect members’ interests, any suggestion that these actions will reduce real world emissions is unsupported by evidence.
“Many investors have resisted calls for divestment from fossil fuels for years, claiming that engagement with companies would bring about the change required to reduce emissions. But investors have not demonstrated if and how they have applied pressure to emissions intensive companies prior to divestment. Not a single director has been removed on climate grounds, nor has a remuneration report been opposed. Instead this divestment happens in stealth and often without any public acknowledgement.
“Some investors have demanded that companies like BHP divest their coal assets, despite there being no evidence that this will result in real world emissions reductions. These assets may end up in the hands of a buyer of last resort, that has no intention of operating them responsibly with climate goals in mind, much less in supporting workers through the transition, or rehabilitating mine sites.
“Very few Australian listed companies have set Paris-aligned emissions reduction targets. It is clear that years of polite conversations behind closed doors have failed to produce the results many investors have long promised. While some of these companies may well be incapable of change, and worthy of divestment, investors must be prepared to escalate their engagements.”
Read the full report, Cutting Carbon: what the rush to divest fossil fuels means for emissions reduction and engagement.