Aussie super fund ramps up pressure on government over climate as student mounts legal challenge on sovereign bonds

HESTA warns Australian Government that climate inaction threatens investment in the country as pioneering sovereign debt climate lawsuit filed

Australian super fund HESTA has warned its government that “without urgent climate action, global investors will be increasingly unwilling to invest in Australia as they manage climate change risk”.

The A$52bn fund for health and community workers has called on the government to catalyse investment in a green recovery by committing to net-zero emissions by 2050 and “providing a clear pathway towards transitioning our economy to a low-carbon future”.

“We need the certainty of a net-zero-by-2050 target, it is more than a signal of values, it is a signal of policy stability”, HESTA stated in its recent response to the government’s Technology Investment Roadmap discussion paper.

Its warning comes as 23 year-old student Katta O’Donnell takes the Australian Government to court over its failure to disclose climate risk when issuing sovereign bonds – a case that could have enormous implications for the $31trn global sovereign debt market.

O’Donnell v The Commonwealth accuses Australia’s federal authorities of breaching their duty of disclosure, and misleading and deceiving investors, by failing to disclose climate risk when issuing sovereign bonds. 

“The Australian Government is borrowing against my future: a future threatened by its failure to manage the climate crisis,” said O’Donnell. 

“The global financial system has a $31trn sovereign risk problem, and that problem is the climate crisis,” added David Barnden, lawyer for O’Donnell and Principal at Equity Generation Lawyers – the same law firm overseeing the landmark climate lawsuit against retail sector superannuation fund REST, brought by a member of the scheme. That trial is scheduled to take place in November. 

‘We need the certainty of a net zero by 2050 target, it is more than a signal of values, it is a signal of policy stability’ – HESTA

Australia was rated among the worst performers in the Climate Change Performance Index (CCPI), coming 56th out of a total 61 countries. 

HESTA stated in its response to the discussion paper that the government’s “inaction is not an abstract concept” and pointed to the offloading of bonds issued by the Queensland and Western Australia Governments by the Swedish central bank Riksbank over climate risk concerns in 2019.

Last month it was reported that the manager of Norway’s sovereign wealth fund, Norges Bank, was considering some of its holdings in Australian companies in light of climate risk following a tightening of investment guidelines. 

HESTA also raised “serious reservations” about increasing reliance on gas in its submission, and said that the “role of gas in the transition may be overstated by some proponents, particularly for the provision of baseload energy”. 

The super fund is in the process of developing a Climate Change Transition Plan, which it regards as the “most comprehensive plan” ever undertaken by a superannuation fund and will see it reduce the absolute carbon emissions in its investment portfolio by 33% by 2030 and to ‘net zero’ by 2050.

HESTA made four recommendations in its response to the government’s paper:

  1. Commit to net-zero emissions by 2050, with a 2030 milestone to ensure we are on a trajectory to achieve this
  2. Recognise that the role of gas in the transition is limited
  3. Remove barriers to long-term investment, particularly around Power Purchase Agreements
  4. Enable innovative investment partnerships and structures to boost Clean Tech investment

“We are at a critical juncture – the time to choose and commit to a low-carbon economy is now. We don’t want to see a carbon-led recovery that locks in long-term emissions and increases the risk of assets becoming stranded,” said HESTA CEO Debby Blakey.