Local Government Super (LGS) has reaffirmed its strong commitment to responsible and sustainable investing by enhancing its ‘negative screening’ approach to combat the future impact of climate change on its portfolios.
The latest changes to the already comprehensive and well-established LGS negative screen methodology incorporates an additional screen to exclude companies with a material exposure to ‘high carbon sensitive’ activities such as coal and tar sands mining, as well as coal-fired electricity generators. The threshold for this ‘high carbon sensitive’ negative screen has been set at a minimum of one third of company revenue.
According to Peter Lambert, LGS Chief Executive Officer, this decision was driven by the understanding that this sector will be adversely affected from an investment perspective by the likely transition to a lower carbon economy as governments respond to the increasing threat of climate change.
“Climate change is an unarguable scientific reality and one which poses a very real investment risk. Governments around the world have begun to act on climate change, which is having a negative impact on the future outlook for the coal industry. This focus will likely continue as coal companies become increasingly difficult to be relied on as a low-cost energy source,” Mr Lambert said.
“Coal and oil sands are the most carbon intensive forms of energy and most susceptible to carbon regulatory risks. With trends such as competitive pressures in the coal industry, concerns in China over pollution and water, and the introduction of energy and carbon efficiency standards on the utilities sector in the US indicating a shift away from a high carbon to a lower carbon economy, we believe that support for these sectors will decrease as will shareholder value.”
“In moving away from high carbon investments, we are supporting environmental and economic alternatives to investing in these sectors.”
“At the same time while the use of renewable energy will increase, it will not be able to meet all the energy needs around the world in a lower carbon future, so alternatives need to be considered. Because of this we have decided to remove the nuclear energy screen from our list of excluded industries, as we believe nuclear energy is increasingly becoming a viable, low carbon emitting energy source globally.”
“Nuclear energy is currently the only proven alternative to fossil fuels that provides baseload power capacity, so outright exclusion of nuclear energy directly conflicts with our view on the importance of reducing our reliance on high carbon energy sources.”
Local Government Super’s ‘negative screening’ approach has been applied and regularly reviewed since its inception in 2000. It is designed to actively screen out investment in tobacco, gambling, armaments and old growth forests, as well as excluding companies with poor management of environment, social and governance (ESG) risks.
Additional recent changes to LGS’ ‘negative screening’ approach include:
• removing the revenue threshold (to a zero threshold) for ‘controversial weapons’ (e.g. land mines and cluster bombs) and tobacco
• clarifying the definition of an excluded activity to that of manufacture and production only.
The changes to LGS’ ‘negative screening’ approach were approved by the LGS Board and are being implemented immediately. The approach is reviewed regularly and updated when required.
