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Q+A: How Future Super Screens Your International Shares, AGL's Demerger & Shareholder Activism

Written by:

Jake Landa

31 May 2022

Big Money

What happened?

In March, Aussie billionaire and climate activist Mike Cannon-Brookes led a bid to take control of Australia’s largest energy producer, AGL. The purchase bid of around $9 Billion included a proposal to close AGL coal plants by 2030 and take the energy giant to Net Zero by 2035. Despite being knocked back by AGLs board, Mike hasn’t taken no for an answer.  He recently bought 11.3% of AGL shares, becoming their largest shareholder. At the same time, he launched a shareholder activism campaign to stop AGL’s demerger.

Why it matters

This is the most notable climate-focussed shareholder intervention in Australia to date, and it signals an ambitious attempt to fast-track a clean energy transition. The plans to demerge AGL would split it into a renewables company and a fossil fuel company. This would divide the resources available for a clean energy transition and give AGL’s fossil fuel arm a licence to keep emitting. AGL itself has admitted that the demerger does not align with climate goals. Rather than a hostile takeover (where an investor buys enough shares to take control of a company), Mike Cannon-Brookes is using his Keep It Together Australia campaign to rally other AGL shareholders towards a clean energy-powered future.

How it affects you

Future Super invests in renewables at a higher rate than many funds. One of the challenges we face is finding investment opportunities that create impact and systems change, while still benefiting your financial future. We don’t compromise on either. If AGL begins to transition rapidly to renewable energy, there could be a lot more renewable investment opportunities in Australia’s future. That means more opportunities for your money to build a clean and sustainable future.

Our Money

What happened?

In April, Future Super released an investor letter to UNPRI (a United Nations coalition of Paris Agreement aligned investors, for those playing along). It detailed a list of demands for Australia’s Big 4 Banks (Westpac, NAB, Commonwealth and ANZ) to develop more robust policies on lending - or not lending - to fossil fuels. Since then the letter has gained the signatures of over $1 Trillion worth of investors, and should open negotiations with the banks to improve upon their current climate record.

Why it matters

We don’t invest in Australia’s Big Four. We can’t, because we don’t invest in businesses that lend to fossil fuels. But we’d like to see a world where we could invest in these major financial institutions. Having the backing of investors worth trillions gives us a seat at the table to engage with the banks in a meaningful way. It shows the banks that it just might be better for business if they don’t support the future of fossil fuels.

How it affects you

Sometimes the work that Future Super does behind the scenes to deliver systems change and hold businesses to account goes unnoticed. When you think about super, you’re probably thinking about your balance and investments. But this sort of investor advocacy also leverages the power of your super into positive climate impact. Your super and your choices are helping to lead a movement of investors that want to do better with money.

Your Money

Future Super’s Impact Team just screened hundreds of your investments. They’re the secret sauce to what makes Future Super different to other funds. So, we thought we’d do a quick Q+A on how the magic happens.

What is screening and what does it involve?

Screening is where we look at thousands of investments and eliminate those that don’t meet our set standards from consideration. We recently evaluated over 4000 listed companies, and we used a process of elimination to reduce that to around 230.

Our positive screen includes companies with lower carbon intensity (carbon emissions per dollar) in our list of possible investments. From there, we remove companies through negative screening, if their business activity fails the ethical standards we set (e.g. lending to fossil fuels or making weapons). Some highly controversial investments are also removed because they pose an unacceptable risk that’s not covered by our screens. Once we have our final list, we make a recommendation to the Responsible Investment Committee to update your investment holdings.

Why does Future Super screen all our investments?

So the companies we invest in continue to match our values. Our member base has diverse opinions, but our ethical screens capture the core values we share. We believe if companies are run more sustainably - the financial jargon for this is ESG, which stands for Environmental, Social and Governance factors - they’re more likely to outperform their competitors long-term.

How does this compare to what other super funds do?

It’s common for super funds to offer a ‘Sustainable’, or ‘Socially Responsible’ option. Funds will often build sustainable products by using ESG ratings scores like MSCI as a screening tool. It’s estimated that about 60% of all ESG investments globally are held in funds built on MSCI ratings. The problem is that MSCI actually measures the impact of the world on companies, not the impact of companies on the world. It’s why some banks receive ESG ratings upgrades, despite lending billions to fossil fuel expansion. And it’s why Future Super chooses to do these evaluations internally.

What’s something interesting that members should know about the work you just did?

We saw two real positive shifts this year. We’re excluding fewer companies for having all-male boards. The presence of more women executives marks progress on social equality, but it also matches the research that shows companies with more gender diversity on boards perform better. The other noticeable change is that we’re seeing a lot more companies report their scope 3 emissions (the carbon released when someone uses their product). This should lead to more transparency and environmental accountability in the future.

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