Our position on climate change

Hostplus’ Board has ultimate responsibility for oversight of Hostplus investment decisions, including oversight of management of the financial risks due to climate change. The Board follows an investment approach that is in accordance with Hostplus’ investment governance framework. Management of climate-related financial risk is embedded in the framework, including through the Investment Philosophy, Responsible Investment Policy, Stress Testing Policy and investment strategy process. Through a combination of these processes, the Hostplus Board has considered or noted climate change matters as part of five out of seven board meetings held during calendar year 2020.

Hostplus invests wholly through specialist external investment managers as we believe this model not only provides great value for Hostplus members but also gives them access to the skills and expertise of some of the best investment managers in the world. We work closely with our investment consultant, JANA, to select and monitor our external investment managers. While the approach to ESG integration may vary by manager, each manager's ESG capabilities must be in line with that of their asset class peer group at a minimum for inclusion in the portfolio.

Hostplus has concluded that it is not in the financial best interests of our members to apply a blanket ban on any exposure to fossil fuels in our Fund. However, we are keenly aware of the impact of fossil fuels in exacerbating global climate change. For that reason, climate change is a key consideration taken into account by Hostplus and our investment managers when applying our investment decision frameworks as described above.

Any investment in a particular company, asset or sector that is heavily exposed to or reliant upon fossil fuels is likely to be assessed as higher risk. This could be due to likely future regulatory changes and market shifts away from the use of fossil fuels, among other factors. We rely upon our rigorous investment process, which includes external investment managers considering climate-related risk as one of a range of factors, to determine decisions about the selection, retention or realisation of Hostplus’ investments across the portfolio.

Where we are invested in a company within the fossil fuel industry, Hostplus uses its influence as a shareholder to create change within these companies by encouraging and supporting an orderly transition to a low carbon economy.

Hostplus pursues an active ownership program and engages with companies both directly and through specialist service providers, the Australian Council of Superannuation Investors (ACSI) and Hermes EOS. This involves meeting the company Boards and management. Our engagement focuses on understanding and analysing how companies are strategically responding to climate change and their capacity to transition to a low carbon environment. By taking a collective engagement approach, Hostplus can exert greater influence beyond our own shareholding in an investee company and manage resources more effectively.

We have found this engagement to be a highly effective. During the past financial year, we engaged with 189 companies, either directly or through the Australian Council of Superannuation Investors, of which we are an active member. Pleasingly, 18 out of 20 target companies have made improvements with respect to their disclosure of climate change risks and opportunities. By way of two examples, Hostplus' engagement has significantly contributed to the following outcomes:

Rio Tinto

Subsequent to ongoing engagement, Rio Tinto released a TCFD (Climate Change) report which assessed how the business is strategically placed for a low carbon transition - by including a well-below 2 degree scenario as well as physical risk analysis and an industry-associations review. Rio Tinto has also exited from coal assets and has indicated it is likely to consider a 1.5 degree climate change scenario this year.

BHP

ACSI has engaged with BHP on the issue of industry organisations since 2015. BHP is a member of a number of industry organisations, which it could be argued have a different position on climate change than its own, including Coal21. ACSI raised with BHP concern regarding Coal21’s campaign aimed at “enhancing the public standing and reputation of Australia’s coal industry and Australian mining more generally”. In September 2019 in response to ASCI's engagement, BHP supported a constitutional amendment of Coal21 which confirms its research focus and limits any communication to technical matters only. At BHP’s subsequent AGM, Hostplus also supported a shareholder resolution which called on the company to suspend membership of industry organisations whose lobbying is inconsistent with the Paris Agreement.

When company oversight or practices are insufficient, that prompts us to take further action, which may include voting for climate related shareholder resolutions. We favour a pragmatic and commercial approach to voting at company AGMs that considers the specific circumstances of each company and proposal on a case-by-case basis. We aim to vote in all matters where it is practical and in our members’ financial best interests for us to do so. Our voting takes into consideration advice and voting recommendations received from ACSI and our investment managers. During 2020 we supported climate change shareholder resolutions at Santos and Woodside that, among other things, sought to require these companies to set short, medium and long term goals in line with the goals of the Paris Agreement and to review direct and indirect lobbying activities related to climate change.

Beyond incorporating climate change risk into our investment decisions and engaging with companies to encourage them to take action, we also invest in a range of climate solutions. As our Chief Investment Officer, Sam Sicilia, highlighted during his Annual Members’ Meeting address, we have put in place a roadmap of actions to ensure we are transitioning our portfolio to capitalise on sustainable opportunities without compromising the financial interests of our members, which is, of course, our number one priority.

As one of the largest Australian investors in venture capital, we invest in a range of assets that aim to change the world for the better - in areas including medical therapies, alternative food sources, collaborative tech, robotics and clean energy – while aiming to deliver future investment returns for our members.

Hostplus’ members are invested in companies and assets that are at the forefront of developing the technology and solutions we will need to transition to a low-carbon economy. These include:

Powering Australian Renewable Fund (PowAR)

PowAR aims to develop and own approximately 1,000 megawatts of large-scale renewable generation projects. The fund consists of four assets across wind energy and solar energy and will assist Australia’s transition to a more sustainable energy future.

Swift Solar

Swift Solar is a US start-up developing lightweight and flexible solar cells. They have invented new technology using a mineral called perovskite, which can be more efficient, more affordable, and more scalable than conventional solar technologies. The company is well-positioned to initially serve high-value markets such as aerospace, electric vehicles and telecommunications, and if successful, could ultimately provide the lowest-cost source of zero-carbon electricity in the world.

Commonwealth Fusion Systems (CFS)

CFS is a company developing a new generation of super conducting magnets, to be used in smaller more economical fusion reactors. Fusion energy, unlike fission energy used in conventional nuclear reactors, has the potential to produce clean, carbon emission free baseload power, without the by-product of long lived highly radioactive isotopes. It’s the same reaction as occurs in the production of the sun’s energy.

Rialto Bio Fuel

Rialto Bio Fuel is a resource recovery facility under construction in Rialto, California that will provide organic waste recycling and renewable energy generation to local government authorities and solid waste haulers, who are under regulatory requirement to divert organic waste from landfills in order to reduce greenhouse gas emissions. The facility will convert biosolids into a fertilizer product and organic waste into renewable natural gas for use as a carbon negative transportation fuel.

Terra-Gen

Terra-Gen is a vertically integrated US renewables platform, with a pipeline of late-stage development projects in addition to a mature portfolio of wind, solar, geothermal and battery storage assets primarily located in the California market. Terra-Gen currently operates over 1.6 gigawatts (GW) of facilities and has more than 3 GW of projects under development.

Wheelabrator

Wheelabrator is the largest pure-play energy-from-waste company in the UK. It owns and operates four energy-from-waste power plants and has three sites in advanced stages of development, which will provide a total electricity generation capacity increase of 143MW and waste processing capacity of 1,200,000 tonnes per annum.

Finerge

Finerge is Portugal’s second-largest renewable energy producer, operating 53 Wind Farms and 16 PV solar plants. More than 700 turbines harness the energy of the wind, and thousands of photovoltaic modules collect energy from the sun, transforming it into 3,100 TWh of clean electricity annually and avoiding more than 1.8 million tonnes of CO2 emissions.

Climate change risk management is part of our responsible investment approach for all investment options. But for members whose preference is to avoid investments in fossil fuels, we offer a Socially Responsible Investment (SRI) option. The fossil fuel exclusions in our SRI option have been progressively tightened over time.

From 1 January 2021, the option will avoid investing in all companies that mine, produce or generate energy from fossil fuels, as well as those that receive more than 10% of revenue from servicing the sector.

For more information, refer to our Socially Responsible Investment (SRI) – Balanced option.

We have also listened to the results of a survey of more than 3,000 of our members regarding their preferences for the SRI option and will be releasing a significantly updated and improved option in the first quarter of 2021. The option will:

• Exclude a range of industries (fossil fuels, companies that breach human rights or labour rights standards, companies with very poor ESG policies and systems, controversial weapons, uncertified palm oil, predatory lending, for profit immigration detention, gambling, tobacco production and live animal exports).
• Focus on investing in companies and assets that contribute toward positive social and environmental outcomes aligned to the Sustainable Development Goals (e.g. green buildings, renewable energy, community infrastructure, essential water infrastructure, green bonds, medical solutions and alternative foods).

Hostplus is a signatory to the United Nations-supported Principles for Responsible Investment (PRI) and is proud to have last year achieved an A+ rating for our Responsible Investment Strategy and Governance from the PRI. Responsible investment, which involves incorporating environmental, social and governance factors into investment decisions and active ownership, helps Hostplus manage risk and optimise retirement outcomes for its members. Hostplus’ Responsible Investment Policy outlines the principles that direct Hostplus’ approach to responsible investment. The Policy is reviewed on an annual basis by Hostplus Management, in line with Hostplus’ strategic review process. Any changes that are required to be made to the Policy are referred to the Hostplus Board for approval.

Hostplus recognises that the management of climate-related risk is a rapidly evolving area, which requires continual review and advancement. For this reason, Hostplus has implemented a commitment to review its approach to climate-related risk management on an annual basis and to report the results of the review to the Board through the ESG Review.

As we said at our most recent Annual Members’ Meeting last December, we are actively considering a net zero emissions target as part of the review of Hostplus' approach to climate-related risk management that has been substantively under way for a number of months.

In addition, we note that APRA has flagged its intention to develop a new prudential practice guide which will aim to assist regulated entities to prepare for climate risks and clarify regulatory expectations in respect of the management of those risks. Hostplus welcomes the preparation of this guidance and intends to review and adopt new guidance as and when this becomes available.

We look forward to updating our members, and the broader community, on our climate change strategy and related actions in the near future.