Aussie pension funds will keep relying on miners for returns, says ex-minister

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

Nick Sherry, superannuation minister from 2007-2009, said the coal and gas sectors would continue to be an “appropriate” 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 it was not the right time to divest from these sectors.

“Mining companies export gas and coal to countries that are still growing their use of these natural resources,” said Sherry, chair of TWU Super — a superannuation fund for the transport sector with A$6.4bn (US$4.4bn) of assets.

“Those countries will continue to rely on those exports for some time to come.

“So [Australian mining companies] are still seen as an appropriate place [by super funds] to invest, subject to an ESG oversight on how the businesses intend to adjust to a net carbon world.”

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

Some funds are taking steps to do this through divestments of holdings in mining stocks, while others are choosing to engage with mining companies they hold and influence their environmental positions.

In 2021, one of the world’s largest pension funds, ABP, announced plans to sell its €15bn of holdings in fossil fuel companies, including Royal Dutch Shell, claiming it had been unable to persuade the sector to transition quickly enough towards decarbonisation.

In contrast, last year the US$319bn California State Teachers’ Retirement System (Calstrs) rejected efforts by legislators to make it dump its holdings in fossil fuel companies, warning that such demands would hit the value of its members’ savings.

Sherry said Australian superannuation funds faced a dilemma in that mining companies formed a significant part of the country’s stock exchange, ASX, as it is a leading exporter of coal and gas.

The ASX is home to a large number of mining companies, ranging from multibillion-dollar businesses to small-time players. BHP is the largest miner with a market capitalisation of A$197bn.

“Our net zero commitments in Australia in part reflect the reality of the Australian economy and that has to be taken into account by the pension [super] funds,” said Sherry.

“You can’t simply absent yourself from industry sectors where there is ongoing demand when they form large parts of the Australian economy.”

However, he added that the “adjustment” to a less carbon intensive investment was well under way in the energy sector in Australia.

“There’s no doubt about that with the rise of renewable investment in areas such as solar and wind,” he said. “Many funds have direct investments in these areas — that is occurring.”

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