Case study by UniSuper

In the spirit of showcasing leadership and raising standards of responsible investment among all our signatories, we are pleased to publish case studies of all the winning and shortlisted entries for the PRI Awards 2021.

Give an overview of your sustainability outcome targets and explaining the methodology for establishing them. This should include information on:

  • The sustainability outcomes, positive or negative, that you are seeking to shape.
  • The specific targets you have set, and relevant related policies you have established to implement action on sustainability outcomes.
  • Any additional context relevant information – that have influenced your choice of sustainability outcomes and targets – including links to global goals and thresholds.
  • % of AUM to which these targets apply.

UniSuper’s Sustainable Path to 2050 strategy consists of three targets and supporting actions to support and advocate for ambitious carbon emission reductions both within its portfolios and beyond.

The targets are: net-zero portfolio emissions by 2050; contribute to a 45% reduction in Australia’s emissions by 2030; and 100% of its portfolio companies (top 50 Australian investments) with Paris-aligned operational emissions targets by the end of 2021.

Supporting actions include: embedding decarbonisation as a core investment theme across its portfolios; meeting with and encouraging decarbonisation strategies in investee companies; incorporating a price on carbon in its investment analysis; divesting from thermal coal miners; and, where practical, setting portfolio net-zero 2030 targets. The investment department’s progress on these targets form part of the KPIs across the team.

UniSuper has a long history of ESG integration, has been monitoring climate risks for well over a decade and has produced a TCFD-aligned report since 2018. It has offered fossil fuel-free options to its members since 2014 and, in 2020, recognised members’ desire to see positive impact from their superannuation savings to meet the aims of the Paris Agreement.

Given the momentum in countries and companies setting net-zero targets, along with the ever-decreasing costs of zero-carbon technologies, UniSuper determined that not only was consideration of climate risks key to managing investment risks, but decarbonisation would be a key investment thematic that would link its fiduciary duty to the aims of the Paris Agreement over the next decade or two.

It has set its targets with a focus on real-economy emissions reductions. It deliberately did not include short- or medium-term portfolio emission or footprint targets, instead prioritising engagement on real-economy emission reductions in company investment and engagement. In setting its short- and medium-term targets, UniSuper aimed to best leverage its influence in its home market and encourage greater ambition across all sectors and industries.

For its short-term target, it focused on operational emissions targets, seeking Paris-aligned emission reduction targets, defined as either net-zero emissions by 2050 or earlier, a Science Based Targets initiative-endorsed target, or at least 45% reductions in emissions by 2030. This target covers approximately 65% of its funds under management.

Its medium-term target is to contribute to a reduction of Australian economy emissions by 45%, and the pension fund is working with its peers, through Climate League 2030, an initiative organised by the Investor Group on Climate Change. Approximately 80% of UniSuper’s investments are in Australian companies and bonds.

UniSuper’s long-term net-zero 2050 target relies on the broad-based decarbonising of the global economy and the success of the Paris agreement to provide a diverse investment universe without compromising the investment risk/returns to members.

Explain how you have sought to shape sustainability outcomes through investment allocations, stewardship of investees and/or engagement with policy makers and key stakeholders. This should include information on:

  • Which levers you have used to achieve your targets, and why you have chosen them.
  • If and how you are working collectively with other investors or collaboratively with other stakeholders to achieve your targets.

UniSuper sees engagement as the key lever to achieve its climate targets. Within Australia, it has good access to management and boards of the companies that it is targeting. Where companies do not meet its short-term targets, UniSuper will consider the follow escalation strategies, based on the company and materiality of climate risks and emissions:

  • Further engagement with the board and management either directly, through service providers such as the Australian Council of Superannuation Investors, or through collaborative engagements such as Climate Action 100+;
  • Supporting climate-related shareholder resolutions, and advocating for “Say on Climate” votes;
  • Voting against a remuneration report;
  • Voting against a director (or, in direct investments, changing directors to bring on more expertise); and
  • Divestment where UniSuper does not see the company thriving in a low-carbon world.

Additional activities to meet its objectives include: incorporating a price on carbon in its investment analysis; measuring and reporting on the carbon footprint of each of its options; keeping the carbon footprint of its diversified options below their benchmarks; working with its unlisted investments to set net-zero targets; and divesting from thermal coal miners as it does not see that they will be able to transition their business.

Describe how you are tracking performance against your sustainability outcomes targets (short, medium and longer term). Include details of any progress achieved to date, any lessons learned, and how strategies or implementation approaches have shifted as a result of experience thus far.

UniSuper reports annually to members on its progress against its targets in its Climate risks and our investments report. This is a TCFD-aligned report that UniSuper has published since 2018. In 2020, UniSuper report the following progress: 52% (by funds under management) of its portfolio had set Paris-aligned emissions targets, up from 7% in 2018; out of 50 portfolio companies, 34 had met its requirements as of November 2020, rising to 39 six months later. While 11 companies were still to set targets by the end of the year, UniSuper is pleased with progress to date. Importantly, gas pipeline company APA, which represents half of UniSuper’s fossil fuel exposure, has set a net-zero 2050 target and is pivoting its strategy to seek low-/no-carbon opportunities.

UniSuper has been pleased with how responsive companies have been to its specific requests. For example, when its managers met with a supermarket chain that was in the process of setting targets, it welcomed UniSuper’s suggestions about the level of ambition and set targets that were aligned with that ambition.

Moving forward, the fund will track the emissions of companies and measure their progress against those targets. With respect to its medium- and longer-term targets, the impact of COVID-19 will make it difficult to determine true emissions reductions over the last year. UniSuper will continue to look for decarbonisation opportunities and will advocate more on national and state emissions targets and supportive policy, both directly and via its investee companies.