Despite having achieved significant emissions reductions by divesting from polluting companies, Aware Super has defended a policy of engagement whereby it works with companies that represent a greater ESG risk.
“Divestment is always the last resort for us. We don’t make decisions to divest from businesses or sectors lightly,” Liza McDonald, head of responsible investments for Aware Super told AsianInvestor.
In November 2020, a shift to passive equity benchmarks that exclude or underweight the highest carbon emitting companies, reduced the emissions footprint of the fund’s equity holdings by 40% from levels at the start of 2020.
In the following six months to the end of June, emissions reduced just 5% more, although the fund declined to say how.
“Our preference is to work with companies to understand and influence how they are responding to ESG risks to deliver positive and lasting change. Through engagement we are able to better understand how companies and sectors are responding to ESG risks and reducing the potential impact on our member returns,” said McDonald.
Australian super funds must tread a fine line between reducing their emissions footprints and the social consequences of accelerating the contraction of polluting sectors. Mining is Australia’s second-largest sector, accounting for 11.5% of national output; resources (including energy, mineral reserves and mining) comprise 68.6% of the country’s exports, according to the Reserve Bank of Australia.
Investor Group on Climate Change (IGCC), represents investors in Australia and New Zealand with more than A$2 trillion AUM. In a July report it emphasised the social cost as companies divested from the country’s large industry of thermal coal mining and coal-fired power stations.
“Simply walking away from these communities is not a real solution,” it said.
The same report detailed Aware Super’s five-year engagement with AGL, a leading Australian energy company, to support workers and the local communities affected by the closure of AGL’s coal-fired power stations.
In October 2020, Aware Super divested entirely from thermal coal. Prior to that, following work by Aware Super, when AGL closed its Liddell coal-fired power station in 2019, it committed not to force any worker into redundancy by transitioning workers to its nearby Bayswater generator or offering voluntary redundancy.
The IGCC report said that Aware Super’s engagement also accelerated shift to renewables by highlighting the risk that AGL’s coal-fired power plants could close up to 12 years earlier than planned.
In September, Australia’s Minister for Resources and Water Keith Pitt said that Australian coal would not be staying in the ground while it continued to provide thousands of jobs and bring significant economic benefits to the country and the world.
In the year to the end of June, Aware Super invested $1 billion into renewables and low carbon technology companies through private equity and infrastructure allocations.
These have included purchase of a 10% stake in Terra-Gen, a US renewable energy platform focused primarily in California, and a stake of undisclosed amount into Perfect Power Solutions, a US-based company developing battery storage projects in New York City.
When it came to achieving ESG outcomes in Asia, the region provided specific cultural challenges, McDonald said. “In some markets, for example, its more challenging to secure meetings with companies,” she said.
As an example of the company’s engagement in Asia, she pointed to a medical equipment company based in Asia owned by the fund.
Aware Super wanted to improve labour and safety practices at the company, which employed an external ESG consultant to improve workplace safety records and processes, with costs partly offset by process efficiencies and workplace improvements.
“This data is now reported monthly to Aware Super and our investment partner,” she said, adding there had been a significant reduction in recordable injuries as a result. McDonald told AsianInvestor the next comprehensive data on emissions reductions for the fund would be published between July and September 2022.