To manage the financial risks of climate change, we incorporate climate change into all aspects of the investment process. We do this through:
Investment philosophy, investment strategy and strategic asset allocation
We incorporate climate-related financial risk into Hostplus’ investment philosophy which forms the basis of investment decision-making.
Along with our investment adviser, we also consider climate-related risks as part of our investment strategy, including the strategic asset allocation, as a structural thematic alongside a range of other risks. Our Board reviews and approves the investment strategy, which guides investment allocation decisions, at least annually.
We embed climate-related risks within our internal risk framework, recognising that climate change has the potential to impact us and our members by way of financial, physical, transitional, regulatory, member retention and reputational risks.
Our chief investment officer oversees climate-related risk, which, based upon the current risk level, must be considered and assessed at least every six months. The Board is responsible for setting our risk appetite. If a risk is outside of our risk appetite, the Board is responsible for either accepting the risk or requesting additional controls.
Controls have been put in place to mitigate and manage climate-related risks. These include the incorporation of climate-related risk within our investment philosophy and investment strategy (including the strategic asset allocation process), conduct of climate change stress testing and scenario analysis, assessment of investment manager climate change risk management capabilities, and engagement with investee companies regarding climate change risk assessment, management and disclosure.
Stress testing of investment options
In connection with our investment governance framework, we determine the overall investment profile for our investment options based on a range of factors, including climate change stress testing and scenario analysis, in accordance with the Hostplus Stress Testing Policy.
As part of this analysis, and consistent with the recommendation of the Task Force on Climate-related Disclosures (TCFD), we currently consider and report to the Board on two climate change scenarios – the IEA Sustainable Development Scenario (which has a 66% probability of limiting long-term global average temperature rise to 1.8 degrees by 2100) and the IEA Stated Policies Scenario (which represents announced policies and has a 66% probability of limiting temperature rise to 3.2 degrees).
Our stress-testing scenarios and parameters are subject to annual review. These scenarios help us to quantify potential impacts to performance associated with greater transition and physical risk.
Selection and review of investment managers
Based on advice from our investment adviser and internal investment team, our Board is responsible for the appointment of specialist external investment managers that manage the underlying investments.
Our internal investment team and investment adviser subsequently undertake regular monitoring of investment managers’ progress. Part of the manager selection and review process involves assessing the climate change risk management capabilities of each investment manager, which are reported to the Board annually through an ESG review.
Monitoring investment portfolio
We continually monitor our investment portfolios and use external providers to advise on the ESG and climate change risks in our portfolio. Through our investment adviser, we monitor the equities portfolio ESG scores, carbon emissions and climate risk. We also use service provider S&P Global to measure the carbon emissions of our equities portfolio.
We’ve committed to using the Task Force on Climate-related Financial Disclosures (TCFD) recommendations to report our management of climate change risks.
As a signatory to the United Nations-supported Principles of Responsible Investment (PRI), Hostplus has complied with the requirement to report to the PRI, TCFD-based information on climate change, including climate risk assessment within investment policies and strategies, governance and oversight over climate risk, and scenario analysis and modelling.
We also expect the companies in which we invest to disclose climate change risks in accordance with the TCFD, as advocated by our engagement service providers.