media release
6 September 2022
HESTA sets stronger 2030 emissions reduction target and signals heightened monitoring and engagement with key emissions-intensive companies
HESTA today announced a new target to halve normalised emissions[1] across its portfolio by 2030 and informed AGL, Origin, Santos and Woodside the companies are now on a watchlist under the Fund’s engagement escalation framework and needed to show their climate strategies aligned to Paris Agreement goals[2].
HESTA was the first major Australian superannuation fund to announce an ambition to reach net zero carbon emissions by 2050 across its portfolio. The Fund has lifted to 50% an interim target it set in 2020 to achieve a 33% reduction in normalised emissions by 2030 (against a 2020 baseline). HESTA is embedding the enhanced target within the Fund’s Investment Governance Framework.
HESTA CEO Debby Blakey said strengthening the interim target recognised developments in climate change since 2020, such as updated scientific research and the Australian Government’s increased commitment.
“The science is now telling us this is a critical decade and that mitigating climate change related risks requires an accelerated transition and a more rapid reduction in emissions,” Ms Blakey said.
“HESTA is committed to using active ownership with emissions-intensive companies to help drive down emissions in the portfolio and manage climate risk.”
HESTA has been engaging with emissions-intensive companies through both direct and collaborative programs for a number of years. In 2021, the Fund’s engagement escalation framework was introduced.
In July this year, as part of implementing the framework, the Fund conducted its annual assessment of the climate change transition progress of companies that are key contributors to portfolio emissions. The assessment identified AGL, Origin, Santos and Woodside faced significant decarbonisation challenges, requiring a major shift in their strategies to offer low carbon energy products. These companies have now been moved to a watchlist position according to the Fund’s engagement escalation framework.
HESTA has written to the Chairs of AGL, Origin, Santos and Woodside informing them the companies were placed on the watchlist and outlining the Fund’s heightened concern about the disparity between the companies’ strategic targets and a 1.5˚C transition pathway.
Watchlist companies are subject to closer engagement and monitoring. The engagement escalation framework also considers the use of votes against ‘Say on Climate’ resolutions, Directors’ elections, support or filing of shareholder resolutions and/or consideration of divestment, where HESTA considers there is inadequate evidence of progress to address risks and it is in members’ best financial interests.
HESTA CEO Debby Blakey said the best financial interests of members are served through a timely, equitable and orderly transition to a low carbon economy.
“Each of these companies has a role in mitigating climate risk and reducing emissions in Australia, which will help reduce the systemic climate risk to our members’ portfolio,” Ms Blakey said.
“HESTA has engaged with these companies since at least 2018. While we’ve seen some progress, there’s evidence of a gap between the companies’ commitments and their actions to transition their businesses in line with Paris Agreement goals.”
HESTA has sought a response from the companies on how their climate strategies align with a 1.5˚C pathway and how future capital expenditure will support a timely, equitable and orderly transition to a low carbon economy.
Origin, Santos and Woodside were also asked to outline how they will demonstrate that Final Investment Decision (FID) on major projects is consistent with a carbon budget aligned with a 1.5˚C pathway.
In May this year, HESTA voted against the climate plans of both Santos and Woodside, which were rejected by 37% and 49% of shareholders respectively, and wrote to the companies outlining their concerns.
As part of its escalation with AGL, in July this year HESTA took on the role of lead engager through Climate Action 100+, a global investor initiative to push the world’s largest corporate greenhouse gas emitters to take necessary action on climate change.
In its most recent communication with the company, HESTA has sought that AGL’s climate strategy is Paris aligned, requiring closure of coal-fired power stations by 2035. HESTA has also sought to understand how the AGL Board refresh and CEO appointment will support a 1.5˚C pathway-aligned strategy.
As part of its announcement of a new interim emission reduction target, HESTA has committed to by 2030 investing 10% of its portfolio in climate solutions, such as renewable energy and sustainable property[3].
Ends.
[1] Normalised emissions refers to Scope 1 and 2 emissions per million dollars invested with emissions measured against a 2020 baseline.
[2] The Paris Agreement seeks to hold the increase in global average temperature to well below 2˚C above pre-industrial levels and pursue efforts to limit the temperature increase to 1.5˚C
[3] Identification of additional opportunities have been based upon the Sustainable Development Investment Asset Owner Platform (SDI AOP) Taxonomy. Investments aligned to SDG 7, 11.1 and 13 have been included in the baseline.