How green is your super? Funds criticised for lack of transparency

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Multibillion-dollar investments in fossil fuel stocks by Australia's largest super funds has reignited debate over whether divestment or engagement with producers is the most effective strategy in the push to curb emissions.

The Age and The Sydney Morning Herald this week revealed five of the largest industry funds in Australia's $2.9 trillion super sector - Unisuper, HESTA, AustralianSuper, CBUS and Hostplus - have billions of dollars invested in fossil fuel stocks, despite championing their green credentials.

Despite taking a vocal stance on the need to address climate change, some of Australia's biggest super funds have billions invested in coal and other fossil fuel firms.

Despite taking a vocal stance on the need to address climate change, some of Australia's biggest super funds have billions invested in coal and other fossil fuel firms.Credit:Nine

The investments range from bankrolling local open cut coal mines to major global state-owned facilities, some of which were prosecuted for chronic pollution and deadly gas explosions.

The revelations sparked a fierce reaction from members, many of whom had no idea where their retirement savings ended up, with some declaring they would divert their money into new funds.

Meanwhile, retail funds have escaped scrutiny as they have opposed moves to legislate the disclosure of mainstream portfolio holdings since the requirement was first tabled in 2012.

Sizing up a fund’s green credentials is complex and requires digging into its portfolio holdings, voting records and peering behind the scenes to see what’s achieved in board-level meetings.

But this opaqueness will end on December 31, when funds will be forced by the Australian Securities and Investments Commission (ASIC) to disclose the identity, value and weight of each company the fund has money in.

Boutique operator Future Super is one fund that is fully fossil fuel-free. Managing director Kirstin Hunter said divesting from coal and oil was partly an economic strategy as coal plants were likely to become stranded assets as government policy moves to limit global emissions.

Engagement on ethical issues was effective on clearly defined issues, Ms Hunter said, such as improving boardroom diversity, but when it comes to fossil fuels, “I don’t think it holds any water at all".

“There is no amount of shareholder activism or influence that’s going to change their core business,” Ms Hunter noted.

But Rainmaker Information research director Alex Dunnin said he was “very” confident the strategy of engagement was effective.

“These people are putting huge resources into these strategies, they have teams of people running these war rooms. And most of them are getting good investments along the way.”

Mr Dunnin said the argument for divestment was “naive”.

“Small investors can divest and sing from the rooftops as much as they like. Their investments are in the main inconsequential on impacting climate change,” he said.

“Divesting serves no purpose if all you do is sell your shares to another investor who doesn’t care about climate change or ESG.”

'Small investors can divest and sing from the rooftops as much as they like. Their investments are in the main inconsequential on impacting climate change.'

Alex Dunnin from superannuation researcher Rainmaker Information

Big funds can and do divest from stocks. Giant retail super fund provider AMP’s $117 billion portfolio bans investment in tobacco, cluster munitions, landmines and biological and chemical weapons. It also claims to take into account whether there are international conventions that prohibit or control the use of a company’s product.

But understanding the level of fossil fuel exposure among the retail sector funds is close to impossible without full disclosure.

The big four banks were contacted for this story and most said they support measures for improved transparency but only disclose select funds or the top 10 stocks within a single fund.

Ms Hunter said the superannuation industry had benefited from the disengagement of its members as workers unknowingly have multiple accounts racking up high fees.

“If they know more about it, they will roll their accounts together and they [the funds] will lose that money.

“It’s a selfish approach that allows them to keep their members disengaged and not asking questions,” she said.

Ms Hunter acknowledged her $600 million fund could not bring down the fossil fuel industry but said Australia’s $2.9 trillion superannuation sector could make a difference if it worked together.

“If 7.7 per cent of superannuation was invested into renewable energy we could completely transition Australia’s energy system to renewable energy.”