By Nick Hedley
Australian fund UniSuper, which has AU$108 billion (US$70 billion) under management, has imposed a cap on its exposure to fossil fuels to mitigate the risk that it will end up holding stranded assets as the clean energy transition gathers momentum.
The fund will limit its exposure to coal, oil and gas to 7% of its portfolio, and will consider the 5% level “a trigger for monitoring,” Chief Investment Officer John Pearce said in UniSuper’s latest climate risk report.
“The practical effect of the cap is to mitigate the fund’s exposure to stranded asset risk,” Pearce said.
UniSuper’s look-through exposure to fossil fuels is currently at 2.8%.
Pearce said that while the war in Ukraine was forcing some nations to temporarily increase their use of coal to offset the shortfall of Russian gas, “the death of the dirtiest sources of energy such as thermal coal is a matter of when, not if.”
Climate change represents a long-term risk to economic growth and, by extension, retirement savings, he said.
“Factoring the decarbonization theme in our investment considerations is consistent with our legal responsibilities and is aligned with our trustees’ duty to comply with the sole purpose test to provide benefits to our members when they retire.”
With this in mind, UniSuper is targeting net-zero emissions at a whole-of-fund and portfolio level by 2050.
Pearce said stewardship was often preferable to divestment.
UniSuper aims to influence the companies it invests in through engagement and by exercising its voting rights. “Engagement is working. This year, we’ve seen 76% of our investments committed to carbon neutral or net zero commitments by 2030, up from 36% in 2021.”
In contrast, “divestment of ownership, while always an option, simply eliminates the influence we have over companies without affecting real world emission reductions.”
Nevertheless, UniSuper has sold its stakes in companies that generate more than 10% of their reported revenue from the extraction and production of thermal coal.
The fund has also incorporated a shadow carbon price into the analysis of its top 50 Australian investments “to enhance our understanding of the pressure points in our portfolio.”
“It would be safe to say that well before 2050, we will not be investing in companies that do not have a credible plan to achieve net zero,” Pearce said.
On the other hand, UniSuper sees opportunities in clean energy technologies.
“We’re investing in companies that are transitioning their businesses to survive and thrive in a low-carbon world; and we’re investing in companies that provide the necessary infrastructure and materials to support the transition,” Pearce said. “Companies producing steel, nickel, copper and lithium are essential to support the energy transition.”