Australia’s No. 2 Pension Fund Divests From Thermal Coal

Australia’s second-largest pension fund aims to almost halve carbon emissions across its investments within a decade as it joins global peers in mitigating the risks of climate change.

First State Super said it will advocate for Australia’s economy to reduce its greenhouse gas emissions by 45% by 2030 and replicate the target in its portfolio. The A$120 billion ($83 billion) fund will reduce emissions in its stock holdings by 30% by 2023, has divested from thermal coal producers and continues to review its energy portfolio to avoid owning so-called stranded assets.

“Divestment from thermal coal mining is an important first step, but we recognize there is more to do,” Chief Executive Officer Deanne Stewart said in a statement. “It is essential that as a responsible owner, super funds set strong, ambitious and transparent targets to deliver the kind of action we need now to prepare for a more prosperous and sustainable future.”

The action plan comes after months of pressure on Australia’s pension funds -- custodians of the world’s fourth-largest pot of retirement savings at A$2.7 trillion -- to follow firms like BlackRock Inc. and Europe’s Stichting Pensioenfonds ABP in cutting exposure to high-emitting companies. Those calls gained traction after the nation’s deadly wildfires heightened concerns about the impact of climate change.

Here’s how First State is preparing for a low-carbon economy:

  • Reduce scope 1 and scope 2 carbon emissions in its listed equity portfolio by 30% by 2023 from Dec. 31 level
  • Fund has divested from companies that get more than 10% of revenue from thermal coal mining, including Anglo American Plc., Exxaro Resources Ltd., Whitehaven Coal Ltd., Stanmore Coal Ltd., New Hope Corp. and Washington H. Soul Pattinson & Co.
    • Glencore Plc was looked at “very closely” but it didn’t meet the criteria, Liza McDonald, the fund’s head of responsible investment said by phone. First State also considered a lower threshold, but as the larger diversified miners sell coal assets, it instead will continue the engagement program to get them to lower their exposure, she said.
  • Reduce carbon emissions in its whole portfolio by 45% by 2030 from Dec. 31 level
  • Incorporate a “shadow” carbon price on all its applicable assets and investments
  • Review the fund’s energy portfolio mix and consider divesting or excluding areas that won’t be able to transition to a low-carbon economy
  • Invest around A$500 million over three years into renewable energy and sustainable technologies
  • Continue to engage with individual companies around their emission reduction targets and plans

To be sure, there is a risk the fund won’t meet its ambitious emission reduction targets even as the coronavirus pandemic has heightened the need to focus on environmental, social and governance issues in investment decisions, McDonald said. The long-term goal can only be achieved if others join, she said.

“We can’t do this on our own,” McDonald said. “We actually need the rest of the industry to step up as well, to set these targets and advocate for this with us.”

©2020 Bloomberg L.P.

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