Superannuation funds that justify their investments in fossil fuel companies by claiming they use their power as shareholders to push for lower emissions may be greenwashing, the corporate watchdog has warned.
New analysis by activist shareholder group Market Forces shows that AustralianSuper has increased its holding in oil and gas giant Woodside in the past year but allegedly failed to use its extra influence over the company to push for climate change action.
Many super and investment funds say their fossil fuel investments align with their own net zero promises to consumers because active shareholder engagement will encourage companies to go green more effectively than divestment.
But some investors and members are pushing back on these claims, including launching legal complaints that funds are failing to achieve meaningful change through these strategies. Some allege it amounts to greenwashing, or overstating the extent to which they follow through on their climate promises.
While active engagement strategies are yet to feature in the Australian Securities and Investments Commission’s growing list of greenwashing actions, deputy chairwoman Sarah Court warned funds should be on notice it could happen.
“Funds need to ensure that they are actually doing what they are telling members they will do in relation to responsible investment issues, and if they are not then they may be engaging in greenwashing,” she said.
Funds promoting active ownership strategies need to disclose to members their strategy and approach relating to responsible investment issues in their portfolios, she said.
“In circumstances where a fund makes statements that it is electing to invest in fossil fuel companies for the purposes of using its seat at the table to influence an environmental transition or other ESG decision of the company, and the evidence or the fund’s voting record suggests this not to have been the case ... then this could amount to greenwashing under the current laws,” she said.
Funds needed to be realistic about how much sway their engagement strategies had when making these pledges, Ms Court said. “When describing your stewardship approach, you should be careful to not overstate the degree of influence you could reasonably have.”
According to the Market Forces report, released on Tuesday, more than half a dozen super funds increased their investments in oil and gas giants Woodside and Santos this year, despite the companies having expansion plans that will likely increase their emissions.
Those funds have their own net zero timelines or commitments to the Paris Agreement to limit emissions, the report found, yet they largely voted in line with management on shareholder resolutions at their latest AGMs.
AustralianSuper and Hostplus both voted with management on every 2023 AGM item for Woodside, for example, despite the former voting against its climate plan last year.
At the same time, AustralianSuper increased its holdings in Woodside across its investment options to account for 4.5 per cent of the company, according to the report. About 8 per cent of Woodside is owned by Australia’s biggest 30 super funds in their default options, and 9 per cent of Santos.
The report also found that Australian Retirement Trust, CareSuper, Hostplus, Mercer, ESSSuper and Spirit Super all increased their exposure to Santos in 2022, then voted with management on every AGM item this year.
Market Forces head of superannuation research Brett Morgan said Woodside and Santos had each announced expansion plans – such as Woodside’s Trion oil field – or further gas extraction north of Australia in this period.
If funds were serious about their active engagement strategies, they should have stepped up their pressure as shareholders or risk greenwashing claims, he said.
“Engagement really needs to be more forceful and funds need to start demonstrating tangible consequences,” Mr Morgan said.
“Any fund that has a net zero target or supports the Paris goals must be using its position as an investor to demand change and must divest from any company which refuses to heed to those demands. Anything else is greenwashing.”
Original article: here