As of June 2023, Australian Super had about $82 million invested in Adani through GQG Partners, Rest had $25 million, CareSuper $15 million, Cbus $12 million and Australian Retirement Trust $3 million, leading to calls from Market Forces for the super funds to demand the investment firm dumps its exposure to Adani.

In a statement, GQG said it had conducted extensive due diligence on the Adani Group companies, and that the conglomerate was doing more to advance the transition to clean energy than groups pushing divestment campaigns.

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“Given the exceptional earnings growth potential that we believe that the Adani companies are likely to deliver, the importance of these assets to the economic expansion in India and the role that Adani is playing in the energy transition, we see no reason to divest from these assets any time soon,” a spokeswoman said.

An Australian Super spokesman said the fund considered “active management” of its assets as the best option, while Cbus said it continued to engage with GQG Partners about its holdings in Adani.

But Rest and CareSuper have dumped their investments in Adani, saying the investment firm no longer held securities in the mining company on their behalf.

Alex Dunnin is the executive director of research and compliance at the Rainmaker Group, a financial services research and publications company. He says divesting is the easy option; the real challenge that will lead to the most profound change is active ownership – using your rights as a shareholder to improve corporate behaviour and make investments more sustainable.

“A couple of years ago, there was this view that we equated the resources sector with fossil fuels, so we need to get rid of those stocks,” Dunnin says.

“And then we realised that if we want to electrify, we need to rebuild the grid, rebuild the machinery, and we’re going to need rare earth minerals like there’s no tomorrow, and who is going to get them for us? Resources companies.

“We can go to all the rallies and all the stuff that I do, but if you really want to change the world, you need to understand how these industries work … If funds get out of the fossil fuel companies [what happens then]? They were going to be one of the voices to engage [and enact change].”

Dunnin concedes active ownership is hard to measure. It could be as simple as sending a perfunctory email to the company whose climate change commitments are sub-par, or voting against remuneration reports at annual meetings.

In October, Market Forces published new analysis of the voting behaviour of Australia’s largest 30 super funds on climate-related shareholder proposals. It found funds were less likely to vote for climate action at “some of the world’s worst climate-wrecking companies” compared with all other companies, while voting against climate proposals that have significant levels of support from other shareholders globally.

Bei Cui, a research fellow at Monash Centre for Financial Studies, says recent research has shown the importance and benefits of engagement over divestment, and that super funds recognise the power they wield as shareholders of a company to persuade boards and executives to take bolder steps to reduce their carbon footprint.

But she has also questioned the effectiveness of active ownership.

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“Some super funds don’t even disclose their voting decision to the public so that’s a contradiction [to the ethos of engagement],” Cui says. “On the one hand, you’re declaring you’re engaging with the company and at the same time you don’t disclose how you engaged or what you voted for. We should expect, and advocate for, more super funds to engage and disclose which way they will be voting.”

That is why the corporate regulator has set its eyes upon greenwashing in the super sector. Late last year, Australian Securities and Investments Commission deputy chair Sarah Court said funds that invested in fossil fuel companies in the name of active ownership must not overstate the degree of their engagement, and disclose that strategy.

Funds don’t have an obligation to divest, Court clarified, but they do have an obligation to be honest about their engagement. While groups such as Market Forces have welcomed ASIC’s crackdown on greenwashing, others are worried how this heavy-handed approach could stifle the sector.

Australian Council of Superannuation Investors chief executive Louise Davidson argues active owners, including funds, have been critical to affecting pro-climate reform.

“One example I would give is the fact that many of Australia’s largest companies now submit their climate strategy for public scrutiny and a shareholder say on climate vote at company meetings. That is not required by law; it is the direct result of companies responding to shareholder engagement and the need to demonstrate improved climate strategies,” Davidson says.

“Greater transparency and accountability make a difference. Companies having to articulate their climate strategy including the impacts, and opportunities, created by the transition to a low carbon economy is critical for long-term investors. Investors know that selling assets to disengaged or disinterested buyers won’t support that transition.”

Engagement and divestment are tools in any investors’ arsenal, Australian Ethical Investment head of impact and ethics Alison George says. While private engagement is crucial, sometimes you need to be making noise publicly.

Last year, Australian Ethical dumped $11 million in Lendlease shares over concerns a planned housing development in south-west Sydney threatened the survival of Sydney’s largest healthy koala population. Lendlease responded by saying it had for years engaged with the fund manager over the project, which they said adhered to the recommendations of the NSW chief scientist.

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And sometimes there’s no point in engaging, George says.

“We were investors in a renewables fund, and we’ve been very clear about our zero nuclear position,” she says. “When they decided to go ahead and invest in nuclear anyway, we immediately divested because they took that decision eyes wide open. We didn’t feel that engagement was going to be something that was going to be successful in changing that.”

Broadly, super funds are legally prohibited from investing ideologically. Their foremost priority is to maximise its return for members, while balancing it with ESG concerns.

Just over 3.5 million Australians will retire over the next decade, with at least $750 billion of funds shifted from the accumulation phase to the retirement phase.

ASIC chair Joe Longo provided a scathing critique of trustees, including super funds, recently saying they were not doing enough to enhance their members’ retirement outcomes.

Dunnin says, “I want my fund to be investing in a good way, sustainably and in line with ethical principles whenever possible, in an ESG sympathetic manner.

“But at the same time, I want to get decent returns because if I don’t have money, I can’t retire. Sometimes when funds or stakeholders get ideological, they forget that the job of a super fund is to make money for their members, but you can also walk and chew gum.”

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