Why Australian Ethical has divested from Brookfield
The super fund has thus far divested from a renewable energy company and excluded a bank
When an asset owner announces a divestment or exclusion decision, more often than not, there is a fossil fuel behemoth at the receiving end. The Church of England Pension Board’s divestment from Shell, Akademiker Pension’s divestment from Eni and Norges Bank Investment Management’s exclusion of Coal India and Glencore are prime examples.
Fossil fuel companies might be the most likely targets of such decisions, but they are not the only ones. Asset owners sometimes extend divestment and exclusion decisions downstream – into industries where such decisions seem atypical.
Australian Ethical, a superannuation fund that manages $12.95 bn, is one such investor. In its recently published 2024 Sustainability Report, the super fund outlines its approach to capital allocation. The report also documents the super fund's divestment from Brookfield Renewable Partners and a decision to exclude DBS Group from its investment universe.
Divestment is the last point of call in our ethical stewardship approach
The Brookfield divestment
In recent months, the debate over nuclear energy has resurfaced down under. Peter Dutton, the leader of the opposition, seems convinced it has a role to play in Australia’s energy transition. “Nuclear energy for Australia is an idea whose time has come”, his coalition proclaims. With a federal election coming up next year, the coalition hopes this idea might resonate with voters.
Australian Ethical’s position on nuclear energy is clear – zero tolerance. “We have a zero-revenue threshold for investments in nuclear energy and uranium mining because of the catastrophic risks associated with nuclear accidents and the misappropriation of nuclear materials which can have an extremely negative impact on people, animals, and planet”, Persephone Fraser, Australian Ethical’s ethical stewardship lead, told Net Zero Investor.
This zero-revenue threshold promoted the super fund’s divestment from Brookfield Renewable Partners, a publicly traded Canadian renewable energy platform that operates assets across five continents.
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“We initially invested in Brookfield Renewable Partners for its focus on renewable energy. A proposed acquisition of nuclear energy producer Westinghouse Electrical Company prompted our engagement, as it no longer aligned with our ethical approach. After confirmation of the deal, we proceeded with divestment, which was completed in December 2023”, says Fraser.
For Australian Ethical, divestment is an option of last resort.
“Divestment is the last point of call in our ethical stewardship approach”, Fraser points out, “we will engage with a company behind closed doors for as long as we think there is a reasonable hope that engagement can address our concerns and create positive change”.
The DBS exclusion
In addition to its divestments, Australian Ethical constructs its investment universe through exclusions. Exclusion decisions are based on a review of the company in question against the super fund’s ethical charter – a set of 23 principles which has been guiding Australian Ethical’s capital allocation since 1986.
This year, DBS Group – a Singaporean financial corporation – was excluded through this process. This is despite the group’s claim that it has “one of the most comprehensive sets of targets in the global banking industry thus far”.
In 2021, DBS became the first Singaporean bank to join the Net-Zero Banking Alliance and committed to a thermal coal exposure phase out by 2039. In 2023, DBS committed SGD $70 bn to its “sustainable financing” program – aimed at projects such as the Sembcorp Tengeh Floating Solar Farm.
For Australian Ethical, the group’s commitments fell short of expectations.
“We decided not to invest because we found the company didn’t restrict its lending to oil and gas projects, which wasn’t sufficient action to align their institutional lending with the Paris Agreement, and therefore didn’t meet our standard”, says Fraser.
At the same time, the super fund has now included Commonwealth Bank, one of the big four Australian lenders, in its investment universe for the first time in 15 years.
In FY 2024, Australian Ethical assessed around 240 companies against its ethical charter. The assessments, which the super fund says are not “black or white” result in one of three outcomes - inclusions, divestments and exclusions. Collectively, these decisions shape the Australian Ethical portfolio. “It helps us to steer capital towards companies that are doing good”, explains Fraser, “and away from those that aren’t”.
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