Aussie super fund could be in breach of obligations over O&G holdings, lawyers argue

Aussie super fund HESTA could be in breach of its obligations and may have misled members over its climate efforts by continuing to invest in oil and gas giants, lawyers representing two members of the fund have suggested.

In a letter to the A$68 billion (€47 billion; $48 billion) fund, made available today but sent earlier this month, the lawyers outline their clients’ concerns that by “continuing to invest members’ funds in gas companies (namely Woodside and Santos), the Trustees of HESTA and its directors may be in breach of their obligations” under Australian law.

HESTA had not commented on the letter at the time of publication.

The two fund members behind the letter are being represented by lawyers from the Environmental Defenders Office, an Australian environmental-focused legal centre.

Their action has precedent. In 2020, Australian retail sector superannuation fund REST agreed to settle a pioneering climate litigation case brought against it by member Mark McVeigh in 2018, which alleged that the fund was not properly considering climate risks.

In the HESTA letter, the lawyers wrote that “potential breaches arise as a result of how the Trustee is managing the climate risks to the fund”.

Three issues are identified, including HESTA’s stewardship of Woodside and Santos. The fund is reported to have voted against shareholder proposals this year requesting that the oil giants disclose plans on how they intend to align their capital allocation with a 2050 net-zero scenario.

HESTA is also questioned about its failure to shed its holdings in the duo “despite the fact that it knew, or ought to have known” that Woodside and Santos “are expanding their gas production in a manner that is inconsistent with the climate goals of the Paris Agreement and a net-zero emissions by 2050 pathway” and continued investment in gas companies pursuing new gas projects “is an investment in a stranded asset that creates an unreasonable financial risk to members in the long term”.

‘Misleading or deceptive’

The lawyers additionally raised their clients’ concern that representations made by the fund on its climate efforts could be judged to be “misleading or deceptive” under Australian law, given its continued investment in big emitters that plan to expand their fossil fuel activities.

They cited HESTA’s 2050 net-zero pledge and language used in responsible investment policies, such as promising members that it “will be gutsy advocates driving meaningful change for generations to come”.

To “avoid these significant liability risks”, the lawyers said their clients recommend that the most “appropriate” action “is to divest from Woodside and Santos”.

HESTA is reported to have around A$228 million invested in Woodside and A$190 million in Santos.

The lawyers gave the fund until 18 August to provide their client with a “substantive response” to the issues raised in the letter.

They added that their client reserved their right “to take further action (but not limited to) the issues set out in this letter, including, potentially raising these issues with relevant regulators and/or considering other possible actions such as commencing proceedings”.

Earlier this month, NGS Super, which manages A$9.8 billion on behalf of teachers, announced that it had divested its holdings in Woodside and Santos.

“Divestment is not our first option. If we have an investment with high Scope 1, 2 or 3 emissions, and they have a realistic business plan to transition to the low-carbon economy within a timeframe deemed acceptable to the fund, we take an engagement approach,” said NGS Super CIO Ben Squires.

The fund supported all three climate proposals at the companies this year, including one on capital expenditure. It also voted against the re-election of one director at each of Woodside and Santos over climate governance.

Its decision to divest, however, was slammed by the Australasian Centre for Corporate Responsibility (ACCR), with the non-profit describing it as a “cop out”.

“While divestment from fossil fuels stocks may be attractive to funds from a financial or marketing perspective, there is little if any evidence that it has an impact on real world carbon emissions,” said ACCR executive director Brynn O’Brien. “On the other hand, there is evidence that sustained and escalating shareholder pressure can have an impact on company decision-making.”

Staying in Australia, the ACCR, a prolific filer of resolutions, has today announced that it has filed a shareholder proposal at Origin Energy asking the utility giant to include a climate sensitivity analysis in its audited financial statements.