Climate change

As a responsible long-term investor, we focus on the risks and opportunities that impact an investment’s ability to achieve returns, as well as how they affect the world our members retire into.

Climate change is an important issue for investors.  It has the potential to impact the financial returns of investments over the medium to long-term. 

Climate change issues can impact an investment in the following ways:

  • Physical risks: For example, a business may experience an increase in
    exposure to floods or fires because of changing weather patterns.     
  • Transition risks: For example, governments may set carbon pricing policies or renewable energy targets – these may cause changes in global market demand.

As a large global investor, with investments across a range of geographic regions, economies and asset classes, HESTA cannot diversify away from climate change impacts.

Because climate change has the potential to impact investment risks and returns, we consider it alongside traditional financial and business risk factors in making investment decisions. 

 

OUR APPROACH AND OUR ACTIONS

In response to the increasing importance of climate change to investments, HESTA has a dedicated Climate Change Policy that outlines our principles and commitments in relation to incorporating climate change considerations into our investment processes and decision-making. For more information, please read HESTA's Climate Change Policy.

We address climate change risks and opportunities in a number of ways, including:

  • ensuring that investment-related climate change risks and opportunities are considered as a core part of our responsible investment integration process
  • engaging with our fund managers to encourage greater awareness and integration of climate change risks and opportunities into investment processes
  • collaborating with other investors to engage with companies with exposure to climate change risks, such as Climate Action 100+ which is targeting more than 100 of the world’s largest listed corporate greenhouse gas emitters  to encourage emissions reduction, strengthen climate-related financial disclosures and improve governance on climate change risks.
  • assessing and engaging with our infrastructure and property fund managers to assess their assets’ exposure to the physical impacts of climate change and how they are adapting and improving  resilience.
  • measuring and reporting the carbon footprint of our portfolio, including signing the PRI-led Montreal Carbon Pledge which commits signatories to measuring and reporting the carbon footprint of their listed equities portfolios
  • investing in low carbon opportunities including renewable energy, green buildings, low carbon equities portfolios, cleantech companies and sustainable forestry assets. These currently amount to $2.5 billion as reported in the Global Investor Coalition Low Carbon Investment Registry
  • collaborating with other investors to engage with policy makers to encourage strong and concerted policy action, such as through our support of and participation in the Investor Group on Climate Change (IGCC)

 

INVESTOR GROUP ON CLIMATE CHANGE (IGCC)

Since its inception, HESTA has played an active role in the IGCC.  The group has grown to represent Australian and New Zealand institutional investors with total funds under management of approximately $2 trillion, and others in the investment community, who are interested in the impact of climate change on investments.

The IGCC aims to encourage government policies and investment practices that address the risks and opportunities of climate change, for the ultimate benefit of members. Currently we are represented on the IGCC Management Committee and are active on working groups. You can find further information on the IGCC website.

 

CARBON FOOTPRINT

Measuring the carbon footprint increases our knowledge and understanding of carbon risks or opportunities in our investments. In 2015, we started measuring the carbon footprint of the listed equities component of our investment portfolio. We expanded this to include our property portfolio in 2017 and our infrastructure portfolio in 2018.

At 30 June 2018:

HESTA's Australian equities investment is 1% more carbon intensive than the benchmark (S&P/ASX 300), partly due to being underweight in banks and therefore comparatively overweight in more emissions intensive sectors.

  • Our calculation is not comparable with previous years because we changed our carbon footprint data provider in 2018.

HESTA's international equities investment is 1% more carbon intensive than the benchmark (MSCI ACWI ex Australia) due in part to a decline in the carbon intensity of the index over the past few years. 

  • Our calculation is not comparable with previous years because we changed our carbon footprint data provider in 2018

HESTA's property investment is 5% more carbon intensive than in 2017, and 19% less carbon intensive than in 2016. 

  • Our calculation covers 61% of the total property portfolio based on Net Asset Value. It measures base building services and not the carbon footprint generated by tenants, which we do not 'own' and is not consistently captured by property managers.

The carbon footprint of HESTA's infrastructure investment for Australian and international assets is comparable to peers, as measured by GRESB.

  • Our calculation covers 87% of the total infrastructure portfolio based on Net Asset Value.

 

HOW IS CARBON DATA COLLECTED AND CALCULATED?

The carbon footprint of our Australian and international equities investments is calculated using total tonnes CO2e / $ million invested.  Total tonnes CO2e is calculated by summing the Scope 1 (direct) and Scope 2 (indirect) carbon emissions for companies in which we invest and then multiplying this by the percentage holding in that company. The total tonnes CO2e are then divided by the total investment dollars in each investment. 

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