Super fund investment options that are billed as “sustainable” or “socially responsible” are continuing to back fossil fuel companies, including coal producer Whitehaven and the major oil and gas groups, according to new research by activist group Market Forces.
But superannuation funds have rejected the analysis, saying their sustainable funds have been assessed as true to label.
Investor interest in sustainable options has boomed, leading the corporate regulator to last month issue general guidance to super funds and other financial services firms on how to avoid greenwashing, which is misrepresenting the extend to which an investment is environmentally sound.
“Being ‘true to label’ is not a nice-to-have, it’s a regulatory must-have,” the Australian Securities and Investments Commission deputy chair, Karen Chester, said.
“It’s also a must-have for investor confidence and trust.”
However, according to Market Forces’ research, as of 31 December, 7.45% of the share portfolio held in the Sustainable Plus Growth option offered by large super fund operator Mercer was invested in what it describes as “climate wrecker” companies.
“Climate wrecker companies,” Market Forces says, are public companies with “the biggest plans to expand the scale of the fossil fuel industry”.
This was the largest proportion among sustainable options surveyed by Market Forces, and higher than the average of 6.26% it recently found among default options, which have no preference towards sustainability.
Mercer belongs to Marsh McLennan, a global professional services firm listed on the New York stock exchange.
It claims its Sustainable Plus options exclude “carbon intensive fossil fuels like thermal coal”, but according to Market Forces, the Sustainable Plus Growth share portfolio includes Whitehaven Coal, which recently said it expected a bumper $3bn profit this year due to high coal prices.
The portfolio also includes another Australian coalminer, New Hope Corporation, as well as oil and gas groups Woodside, Santos, BP, Chevron, ExxonMobil and Shell, Market Forces said.
Market Forces superannuation campaigner, Brett Morgan, said it was “extremely surprising” to find coal in the Sustainable Plus portfolio given Mercer’s claim to screen it out.
A Mercer spokesperson said the fund had not “been given the opportunity to review the Market Forces report and methodology applied to arrive at its findings, and as a result cannot comment on the specifics”.
The spokesperson said the investment in shares was made through two other funds run by Mercer, the Mercer Sustainable Plus Australian Shares Fund and Mercer Sustainable Plus Global Shares Fund.
Asked if the “sustainable” tag was true to label, the spokesperson said the underlying funds had been independently accredited, “which involves a rigorous assessment of whether the fund is true to label and consistent with current industry best practice”.
The next highest proportion of fossil fuel stocks was 6.3%, in the Sustainable Balanced option offered by industry fund CareSuper, which Market Forces found invested in companies including Woodside, BP, Chevron, Exxon, and Shell.
A CareSuper spokesperson said that most of Market Forces’ “critique” of the portfolio was attributable to holdings in BHP, which last month committed to closing its thermal coalmine at Mount Arthur.
“Market Forces’ inclusion of BHP in their analysis skews the data as it belies that a significant proportion of its revenue comes from iron ore and copper, which are both essential to the energy transition,” the spokesperson said.
Vision Super’s Sustainable Balanced option was third, with 4.71% invested in companies including BP, Exxon, Shell, Santos, Japan’s coal-fuelled power supplier Tepco and Woodside.
Vision also disputed the Market Forces figure as too high, although it was unable to provide an alternative number.
Morgan said Market Forces was “confident in our numbers”.
“The methodology is based on our Climate Wreckers Index that we did a few months ago,” he said.
The Market Forces’ index, against which it assessed the super funds’ investment portfolios, is made up of 180 companies from around the world that the group says have “the biggest plans to expand the scale of the fossil fuel industry”.
However, some in the super industry object to the inclusion of German conglomerate Siemens, which has spun off its energy business into a separate company in which it continues to hold a stake.
Siemens is owned by sustainable options offered by both Hesta and Rest.
A Hesta spokesperson said Siemens “derives less than 1% of revenue from fossil fuels” and has earned the highest rating possible from a group that assesses the ability of companies to transition to a low carbon economy.
