Victorian Funds Management Corporation

Signatory Type: Asset Owner

HQ Location: Australia

AUM: AU$71.6bn (as at 31 December 2022) 


Covered in this case study

Asset class(es): Equities


The Victorian Funds Management Corporation (VFMC) is a public authority investing the funds of Victorian government entities for the ultimate benefit of all Victorians. With over AU$70 billion in funds under management, integrating climate factors into our decision-making process is essential to our role as responsible stewards of capital.

Why we seek to align our investments with net zero

VFMC acknowledges that the impacts and effects of climate change have the potential to pose risks to investment returns and financial markets. As an asset owner, VFMC has a responsibility to manage the risks and opportunities posed by climate change in its role of delivering its clients’ long-term risk and return objectives.

In doing so, we make the following commitments:

  • achieve net-zero portfolio greenhouse gas (GHG) emissions by 2050 across the majority of funds under management;
  • undertake engagement with investee companies on their decarbonisation efforts and transition pathways;
  • support climate-positive investments that not only provide strong financial returns, but also help drive the economy’s transition towards net-zero emissions.

Whilst we have a number of investments across a broad range of asset classes, we have sought to focus our initial efforts in the segments of the portfolio where we have the greatest opportunity to engage with companies and influence real-world change.

How we seek to align our investments with net zero

1. Measurement and baselines

As part of our roadmap to achieve net zero by 2050, we have reported in alignment with the Task Force on Climate-Related Financial Disclosures (TCFD) since 2020. The analysis arising from this reporting highlighted climate-related risks and opportunities at a broader portfolio level.

From here, we focused our initial efforts on analysing the Australian listed equity component of our portfolio, which represents roughly 14% of our overall portfolio. We partnered with an external ESG data vendor to calculate the emissions profile of the portfolio (financed emissions that were measured on an absolute basis as well as weighted-average carbon intensity) across Scopes 1, 2 and 3 (upstream and downstream) to form a baseline assessment.

2. Understand trajectories

Whilst current emissions are important, just as relevant are the individual company trajectories towards net zero and understanding that for some companies in hard-to-abate sectors, this pathway may be non-linear in nature. Through our analysis, we sought to understand how the portfolio was aligned with achieving the 1.5°C Paris Agreement goal, including examining individual company-level trajectories based on historic emissions and forecasted emissions. We took into account any decarbonisation efforts companies made, including an assessment of capital expenditure allocated for decarbonisation efforts; strategic alignment to transition; and corporate commitment. Our analysis included corporate and sustainability reports, direct engagements with management, peer relative assessments and industry research. Where possible, we seek to align the decarbonisation methods of an organisation to the sectoral pathways of independent and science-based frameworks such as the Science Based Target initiative or Transition Pathway Initiative (TPI).

3. Company engagement and active ownership

We actively monitor and engage with investee companies to influence positive change in environmental practices across our portfolio and to drive real-world outcomes. Given the breadth of our portfolio, we commenced with prioritising engagement with listed Australian companies that are both material portfolio holdings and that are the heaviest emitters, with a focus on encouraging companies to align their operations to achieve net-zero carbon emissions by 2050 or earlier. We use both one-on-one and collaborative approaches to engagement through industry partners (i.e., Climate Action 100+) to ensure we maximise our influence using multiple channels.

Specifically, our active ownership activities for climate risk focus on:

  • proactively engaging with investee companies on their decarbonisation efforts;
  • exercising our proxy votes at listed company meetings (e.g., through “Say on climate” votes).

Case Study: Company alignment assessment

In 2022, we commenced a targeted engagement program across material holdings within our listed Australian Equity portfolio. In undertaking our analysis on one such company within the metals and mining sector, a company producing materials for the construction industry, we identified that Scope 3 emissions (downstream) of that entity significantly outweighed its Scope 1 and 2 emissions.

Further analysis identified that if the company continued on a business-as-usual trajectory, it would have contributed to an implied temperature rise of far more than a 2°C outcome (and the preferred 1.5°C target) based on Scope 1, 2 and 3 emissions.

Figure 1: GHG emissions by scope (Mt CO2)




The company had a climate action plan to achieve net zero by 2030, with a significant capex commitment. However, based on internal analysis, this targeted Scope 1 and 2 emissions only; the percentage of the company’s carbon footprint covered by the target was only 6%. In addition, when examined relative to science-based transition pathways, it was noted that the company’s transition efforts were not aligned for its industry grouping as assessed by the TPI (TPI online tool - Diversified Mining), largely attributed to the lack of a Scope 3 emissions pathway.

As Scope 3 emissions fall outside a company’s direct management or ownership, and given the complexities surrounding competition and pricing power, this company faced challenges in influencing its end users (customers) to commit to decarbonisation within their own supply chains.

VFMC, through its collaborative partnerships, had a series of meetings with key management personnel and the board and encouraged the company to evolve its approach to addressing Scope 3 downstream emissions. In doing so, VFMC reviewed industry pathways, peer comparisons and approaches to decarbonisation for end customers in the construction industry.

The company in turn engaged with its customers in the steel value chain and committed to working with them to develop the technologies to decarbonise production. The company identified that to influence its supply chains, it would need broader industry support and so sought out global collaboration to invest in technologies that could deliver reductions in steelmaking carbon intensity.

The combined efforts resulted in the company establishing in 2022 an engagement target with customers (representing 50% of their total Scope 3 emissions) and undertaking efforts to support the sector to achieve sector-wide Scope 3 emissions reduction of 42% by 2040 (from 2020 levels). This will be pursued through research and development in technologies such as low-carbon sintering technology; blast furnace and basic oxygen furnace optimisation; and carbon capture and utilisation.

VFMC will continue to monitor and review the company’s progress against its targets in line with our stewardship program.

Find out how other investment managers and asset owners implemented net-zero commitments in listed equity portfolios in our report, Net zero in practice: Insights from equity investors.