Hesta has ‘significant appetite’ to increase renewables investments

The A$52 billion industry superfund has set a target to achieve net zero emissions in its portfolio by 2050, with renewables set to play a major role in the transition.

Hesta, which has approximately A$52 billion ($36 billion; €32 billion) in assets under management, has committed to reducing the absolute carbon emissions in its investment portfolio by 33 percent by 2030 and to reach net zero by 2050.

The not-for-profit industry superannuation fund, which has its origins in the health sector, is one of the largest superfunds in Australia to commit to such a target.

The target is part of a broader Climate Change Transition Plan that the fund has launched to ensure that its investment objectives are aligned with the goals set out by the Paris Agreement.

It is also more ambitious than the one adopted by the federal government, which has committed to reducing greenhouse gas emissions by 26-28 percent by 2030 compared with 2005 levels. This commitment is insufficient to meet the goals set out by the Paris Agreement, but is also one that Australia is on track to miss according to the Climate Action Tracker. The government has not set a net-zero target for 2050.

As well as aiming to achieve net zero emissions in its portfolio by 2050, Hesta said it will introduce carbon reduction targets for its portfolio and seek further investments in “opportunities arising from the low-carbon transition”. It will monitor and report progress on these targets on an annual basis.

The superfund will also “pursue real-world economy change” by engaging with material holdings and its fund managers to better address medium-term climate change transition risks and opportunities.

When asked by Infrastructure Investor what this policy could mean for the fund’s portfolio composition, chief executive Debby Blakey said investments in renewables assets are currently among the main ways that Hesta gains exposure to transition opportunities. She also flagged a desire to increase exposure to the asset class.

“We see ourselves investing more in the renewables and clean tech space in the coming years,” she said. “Investment in renewables currently represents approximately 5 percent of our infrastructure portfolio. This is a portfolio underweight relative to other sectors.

“Assuming renewables have the right risk/return profile through long-term stable contracts, Hesta would have significant appetite to invest in more renewable opportunities, particularly in Australia, as they diversify GDP-linked assets currently in the portfolio. However, opportunities at an appropriate scale are relatively rare domestically, and Hesta is advocating strongly for the stable, predictable policy settings necessary to encourage long-term investment.”

An example of energy policy that creates uncertainty for investors in renewables is the marginal loss factor framework. MLFs determine how much of an asset’s output will be credited by the Australian Energy Market Operator, so that a wind farm with an MLF of 0.80 will only receive payment for 80 percent of its output. Similarly, a rating above 1.0 will see the asset credited for more than its output.

Investors have criticised the MLF framework and called for a change, but in February the Australian Energy Market Commission decided to retain it.

According to Hesta’s most recent annual report, the superfund has made commitments to infrastructure vehicles managed by IFM Investors, KKR, Morrison & Co, Pacific Equity Partners, Palisade Investment Partners and Westbourne Capital.

Hesta’s default MySuper option has a strategic asset allocation to infrastructure of 12.0 percent.

In a further statement on the emissions targets, Blakey said: “We’re at the start of this journey, and we acknowledge that there is still a lot of work to be done.

“We are confident the CCTP can position our investment portfolio well into the future to help us achieve our ambitious investment objectives and continue to deliver strong, competitive, long-term returns for Hesta members.”