Did Vision Super divest on the quiet?

Early last week, Vision Super posted a press release on their website announcing their commitment to sustainable investment. Vision Super also updated their website, adding a page dedicated to “Sustainable Super” and the calming image of a wind farm on its home page. This was followed by an email to members yesterday, confirming that in October, 45% of their share portfolio had been shifted to “low carbon” indexes.

In and of itself, action of this kind should be applauded. We need the entire superannuation industry to take climate risk seriously, so it is very pleasing to see another fund come to the table.

Market Forces volunteers at Moreland City Council offices on 8 December.

Coincidentally, the day prior to the announcement, a small group of Market Forces volunteers took the initiative to leaflet Vision Super members at the Coburg offices of Moreland City Council. The reception was positive – about 100 employees were provided with information about Vision Super’s investments in fossil fuels, most of whom expressed their displeasure.

Did our small action force Vision Super’s hand on announcing their sustainable investment approach? Perhaps Vision Super were waiting for the conclusion of the Paris climate talks to go to press, or perhaps the new year. Whatever the case, it proves that the fund is prepared to listen to its members – yet another positive outcome.

But what does Vision Super’s announcement actually mean? According to the announcement, Vision Super’s passive index investments in Australian and International shares represent more than 45% of its share investments. Within the Balanced Growth (MySuper) option, 53% of the portfolio is in shares. So the shift to low carbon indices affects just 24% of the Balanced Growth portfolio.

What is a low carbon index anyway? Well, it is not carbon neutral or fossil fuel free. According to MSCI, their low carbon index aims to track the returns of the standard index, while minimizing the carbon exposure. It does this by overweighting companies with low carbon emissions and underweighting companies with high carbon emissions. For example, instead of weighting Exxon 1%, the index might only weight it 0.5%. And instead of weighting Apple 2%, it might be weighted 2.5%.

We have estimated that by making the switch to low carbon indices, Vision Super have divested themselves of $17.9 million worth of fossil fuel stocks from its Balanced Growth option (assuming $5 billion assets under management).

Australian Shares:

Allocation: 26.5%

Passive Weight: 45%

Divested from Fossil Fuels: 2%*

Divested: $11.9m

International Shares:

Allocation: 26.5%

Passive Weight: 45%

Divested from Fossil Fuels: 1%*

Divested: $6m

 *We have assumed that the amount divested from Australian shares is higher than International shares, as the Australian index is far more heavily weighted to fossil fuels than the global index, not to mention far more carbon intensive.

To put the value of this divestment into perspective, Market Forces estimates that the Balanced Growth option lost $28 million from its investments in fossil fuels in the 2014/15 financial year.

Vision Super also lauded their investments in renewable energy, including sole ownership of the Wonthaggi wind farm in Gippsland. What is not clear is the proportion of their infrastructure investments that are renewable, compared to the proportion in fossil fuel infrastructure – which is likely to include coal ports, gas pipelines and traditional electricity generation facilities. What we do know is that the two vehicles Vision Super uses for infrastructure investment – IFM and Hastings – are both heavily weighted to fossil fuels. Yes, there are renewable energy investments, but they are in the minority.

Vision Super is by no means the worst when it comes to managing climate risk; in fact, if we’re to be pragmatic, they’re probably outperforming most of their peers. But that is more a product of a very slow-moving and complacent superannuation industry, than Vision Super being a world-beater. Vision Super’s shift to low carbon indices is welcome, but it is a very minimalist approach. If we are to live up to the lofty ambitions of the Paris Climate Agreement, then asset managers across the country must move quickly and decisively to assist the transition away from fossil fuels.

To let Vision Super know that their approach is just a shadow of what is required, click here.