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.”
