26 June 2020
$52 billion health industry super fund Hesta today announced it will fully divest from companies deriving more than 15% of revenue from coal that is used for energy generation, known as thermal coal.
The fund has also committed to “reducing the absolute carbon emissions in its investment portfolio by 33% by 2030 and to be ‘net zero’ by 2050.”
Both elements of this policy shift are important and welcome steps forward, but leave plenty of room for improvement.
Credit must go to the incredible Healthy Futures team, who have been tirelessly campaigning to get Hesta out of fossil fuels.
Thermal coal divestment
The thermal coal divestment policy adds Hesta to a long list of financial institutions that have severed ties with the industry, collectively denying coal companies access to a huge pool of potential investment.
It will see Hesta dump its investments in Australian coal producers Whitehaven Coal, New Hope Group, as well as New Hope’s parent company Washington H Soul Pattinson. All of these companies are identified in Market Forces’ Out of Line, Out of Time study as undermining the climate goals of the Paris Agreement.
$50 billion super fund @HESTASuper has fully divested from companies with >15% revenue from thermal #coal, and committed to a net-zero emissions portfolio by 2050. Plenty of room for improvement (oil & gas) but a good step. Congrats @HealthyFuturez! https://t.co/wdCO3e2UAu— Market Forces (@market_forces) June 25, 2020
By committing Hesta to not investing in these companies in the future, the decision recognises the recent poor performance of the thermal coal sector as a sign of an industry in structural decline, rather than simply a low point in a cycle.
Market Forces understands the policy only covers thermal coal mining, and does not extend to coal power generators, including AGL and Origin. Continued investment in these companies is incongruous with Hesta’s divestment from thermal coal producers. Why is action limited to coal supply but not demand?
Net-zero by 2050
Hesta’s plan to reduce emissions in its portfolio to net-zero by 2050 appears to involve an ambitious commitment to ensure all companies within the fund’s portfolio have net-zero emissions across their entire supply chains.
This means emissions-intensive industries such as steelmaking will have to fully decarbonise, or Hesta will have to divest from any company involved in those industries, including Australian iron ore giants like Rio Tinto and Fortescue.
It would also appear to rule out any exposure to oil, gas or metallurgical coal, given the huge emissions profiles of these fossil fuels.
As well as failing to address the demand side of the thermal coal sector, Hesta’s plan also fails to recognise that companies expanding the oil and gas sectors are totally incompatible with the Paris climate goals.
Companies like Woodside, Santos, Oil Search and Origin Energy have plans to massively expand gas production in Australia, the climate impacts of which would derail global efforts to limit warming to 1.5°C.
By continuing to invest in these companies, Hesta is supporting their gas expansion plans.
Hesta’s 2030 goal of reducing portfolio emissions by a third is limited to direct (scope 1 and 2) emissions, allowing the fund to take no action to restrict exposure to the emissions generated from the use of oil and gas produced by companies Hesta invests in.
Put simply, Hesta could continue investing in Australia’s biggest gas producer, Woodside, even if it increases production over the next ten years, because the emissions from the use of that gas wouldn’t be included in Hesta’s reduction targets.
This is totally incompatible with IPCC modelling, which shows a 1.5°C scenario (P1: no or limited overshoot) requires primary energy from gas to decrease by 25% by 2030 (from a 2010 baseline).