VicSuper: Protect ALL Members From Climate Change Risks

[DRAFT]-2016-02-22-Vic-Super(2)We have heard from some of their members that VicSuper are currently considering how they treat the issue of climate change, and the myriad of financial and moral issues wrapped up in it.

After seeing a host of other funds mistakenly “tackle” this issue by screening out fossil fuel companies in a sustainable option, we’ve got a question to put to VicSuper:

Are you going to treat all members fairly by divesting from fossil fuels across the entire fund, or will you be another fund that tries to kick the issue into the corner with a “sustainable option”?

Market Forces understands that VicSuper is considering screening out fossil fuel companies, but only from its Equity Growth Sustainability option. The business case for this proposal will be tabled at a VicSuper board meeting in the first quarter of 2016, and the fund needs to be made aware of the inadequacy of this approach before they make their decision.

You can contact VicSuper here and ask them to divest entirely from fossil fuels.

Here’s why such an approach would be inadequate.

Firstly, it assumes all members are engaged enough to switch their superannuation into the sustainable option once it has been made fossil fuel free – they are not. The superannuation sector is well and truly aware that apathy and the lack of financial literacy are key problems in their relationship with members. Unless VicSuper is prepared to embark on a communications drive to make sure members are aware of how they can line up their fossil free values with their retirement savings, we can assume only a trickle of members will make the switch to the Sustainability option.

Secondly, it effectively quarantines the risk only for a tiny percentage of the fund’s members. Over 54% of VicSuper members are in the MySuper Growth option. It’s a reasonable assumption that many of them would prefer to be not financing the destruction of the environment and exacerbation of climate change. Perhaps they would also prefer not to be exposed to the financial impacts and risks of being exposed to fossil fuel companies?

Market Forces estimates that VicSuper lost members $114 million on investments in fossil fuel companies in 2014 and 2015. This equates to approximately $881 per member, or -0.69% p.a. for two years. Throughout the period, numerous coal companies declared bankruptcy, while the share prices of oil and gas companies plummeted in line with crude prices. A Deloitte report released last week suggests that a third of US oil and gas companies will not survive a prolonged period of low crude prices. We thought it was the job of fund managers to protect their members from such impacts, not just the select few who have their super in the Equity Growth Sustainable option.

Finally, the Equity Growth Sustainability option is not suitable for all members. It is entirely invested in growth assets – equities and alternatives. Compare this to the MySuper Growth option, which has 69.5% allocated to growth assets, and the remainder in income assets. This sounds like a recipe for failure – we expect many VicSuper members who would want to move into the Equity Growth Sustainability option would be ill-suited to its risk profile. This is yet another way in which divesting from a sustainable option provides protection to only a select few.

After being considered a leader in the latter part of the last decade, there is evidence that VicSuper have let climate change risk management slide. In their annual report they claim that the integration of environmental, social and governance (ESG) factors into the investment process is sufficient for addressing climate change and the risk of stranded assets. VicSuper lauded its 5% decline carbon intensity (CO2e/$AUm) since 2007/08. However, its carbon intensity has actually risen 15% since 2012/13! If VicSuper’s ESG integration is functioning as they say it should, then its carbon intensity should be declining as quickly as possible.

VicSuper has reached a fork in the road. It can join the likes of First State Super, HESTA and UniSuper that restricted their action to just one investment option, exposing most of their members to massive losses on coal, oil and gas stocks in the last two years; or, it can lead the industry by taking substantive action to reduce its investments in fossil fuels across its portfolio.

Now is the time for VicSuper members to be contacting the fund, telling them to completely divest from fossil fuels. This can be done directly from our SuperSwitch website. Just click the box to “Tell VicSuper to divest from fossil fuels”. And when they reply to say they’re thinking about dropping fossil fuels from their Equity Growth Sustainability option, tell them it isn’t good enough to kick climate risk into the corner. They need to do the right thing by their members and divest across the entire fund.