Australian pension funds will continue to rely on miners for returns, says former minister

Australia’s pension funds will continue to rely on mining companies to generate returns despite calls from scheme members to dump coal and gas stocks, according to one of the country’s former ministers.

Nick Sherry, superannuation minister from 2007 to 2009, said the coal and gas sectors would continue to be a “suitable” investment for pension funds, as long as there was demand for these natural resources from overseas countries.

Speaking to the Financial Times at the World Pensions Council conference in Paris, Sherry said mining companies made up a big part of the Australian economy and now was not the right time to divest from these sectors. .

“Mining companies are exporting gas and coal to countries that are still increasingly using these natural resources,” said Sherry, president of TWU Super, a $6.4 billion transport sector pension fund. Australian dollars (US$4.4 billion) of assets.

“These countries will continue to depend on these exports for some time to come.

“So [Australian mining companies] are still considered a suitable place [by super funds] to invest, subject to ESG monitoring of how companies intend to adapt to a carbon-neutral world.

The comments come as pension funds around the world come under increasing pressure from policymakers and scheme members to reduce their reliance on carbon-emitting assets to combat climate change risk.

Some funds take steps to achieve this by divesting their stakes in mining stocks, while others choose to engage with the mining companies they own and influence their environmental positions.

In 2021, one of the world’s largest pension funds, ABP, announced plans to sell its €15 billion stakes in fossil fuel companies including Royal Dutch Shell, saying it had no not been able to persuade the sector to decarbonise fast enough.

By contrast, last year the $319 billion California State Teachers’ Retirement System (Calstrs) rejected lawmakers’ efforts to force it to sell its holdings in education companies. fossil fuels, warning that such demands would harm the value of its members’ savings.

Sherry said Australian pension funds faced a dilemma as mining companies made up a large share of the country’s stock exchange, ASX, as it is one of the main exporters of coal and gas.

The ASX is home to a large number of mining companies, ranging from multi-billion dollar companies to smaller players. BHP is the largest miner with a market capitalization of A$197 billion.

“Our net zero liabilities in Australia partly reflect the reality of the Australian economy and this needs to be taken into account by the pension scheme [super] funds,” Sherry said.

“You can’t just walk away from industry sectors where there is continued demand when they make up a large part of the Australian economy.”

However, he added that the “adjustment” to less carbon-intensive investment was well underway in Australia’s energy sector.

“There is no doubt about it with the increase in investment in renewable energy in areas such as solar and wind,” he said. “A lot of funds have direct investments in these areas – that’s what’s happening.”

“However, the approach in Australia is generally to engage with business to promote change and that is the practical approach that is taken in Australia.”