Climate-related disclosures

We are committed to providing our customers clear and relevant climate and carbon intensity information to help them to make informed decisions.

BTFG is concerned about the risks arising from climate change and recognises the importance of reducing the emissions intensity of the global economy. BTFG believes that supporting the transition to a low carbon economy is vital if we are to position Australia for the challenges of the future. We undertake a range of activities to ensure we stay informed of the issue as detailed below.

Our approach to climate change

As part of Westpac Group, one of Australia’s largest corporations with a proud track record in sustainability and an over 20 year history of managing environmental impacts, we also recognise that there are significant environmental, social and economic benefits to limiting global warming to less than two degrees Celsius above pre-industrial levels, while supporting greater resilience to the impacts of such a change.

Westpac Group has demonstrated a strong commitment to managing climate-related impacts and has detailed its approach in the group’s Climate Change Position Statement and 2020 Action Plan

This statement sets out five key principles that underpin the approach of BTFG and the broader Westpac Group. These are:

  1. A transition to a net zero emissions economy is required;
  2. Economic growth and emissions reductions are complementary goals;
  3. Addressing climate change creates financial opportunities;
  4. Climate-related risk is a financial risk; and
  5. Transparency and disclosure matters.

In line with these principles, BTFG is focused on understanding the nature of climate-related risk in detail. For our internally developed investment options this includes understanding the scenarios over which the risk could result in variability in portfolio returns and working with our investment managers and consultants to manage this risk where appropriate.

BTFG is a signatory to the PRI’s Montreal Carbon Pledge and is committed to the ongoing measurement and disclosure of the carbon intensity of a number of portfolios.

In keeping with our commitments, we will continue to evolve our climate change disclosures to ensure we are sharing metrics that provide customers relevant and useful information for the investments they hold.

BTFG's carbon disclosures

BTFG has been disclosing information regarding the carbon intensity of a range of investment portfolios within our flagship superannuation funds since 2015. These portfolios represent the majority of funds under management across BTFG's superannuation products.

Investments covered by this analysis include the MySuper Lifestage options under the following products:

  • BT Super For Life (BTSFL) 
  • Westpac Group Plan (WGP)
  • Asgard Employee Super Account (AESA)
  • BT Lifetime Super - Employer Plan (LSEP)
  • BT Business Super (BTBS)

In line with the recommendations of the Financial Stability Board’s (FSB) Taskforce on Climate-related Financial Disclosure (TCFD), BTFG’s climate-related disclosures are made up of three metrics, intended to provide members with information on the investments they hold.

Weighted carbon intensity

Emission intensity in BT MySuper Lifestage options vs Benchmarks.  1940s: 242.9 - 239.6; 1950s: 235.8 - 237.9; 1960s: 227.2 - 233.8; 1970s: 224.1 - 232.8; 1980s: 224.1 - 232.8; 1990s: 224.1 - 232.8; 2000s: 224.1 - 232.8

This metric illustrates the portfolios’ exposure to carbon-intensive companies as compared to a benchmark portfolio. It takes into consideration the intensity of the carbon emissions (measured as Scope 1 and Scope 2 carbon emissions relative to revenue) and the value of the investment as a portion of the overall portfolio. It is expressed in tonnes of carbon dioxide equivalents (tCO₂e) per million Australian dollars of revenue.

The weighted average carbon intensity is based on the investment portfolios’ exposure to Australian and International equities at 30 June 2017. Portfolio exposures not covered by the analysis may include, for example, cash holdings and derivatives as well as other asset classes such as fixed interest, listed property and emerging market securities.

This metric is calculated consistently with the guidance for Asset Owners outlined by the TCFD.

The percentage (%) of Fund covered by carbon intensity analysis

This metric shows the proportion of each fund covered by the weighted average carbon intensity metric. This aligns to the percentage of the fund allocated to Australian and International equities, on which the carbon intensity analysis has been calculated. This means that portfolios with a higher exposure to Australian and International Equities (such as the 1970s, 1980s, 1990s and 2000s options) will have a higher portion of the portfolio covered by the analysis

Exposure to carbon-related assets

Equvalence to benchmarks. 1940s: 3.7 v 3.6; 1950s: 4.9 v 5.0; 1960s: 8.7 v 9.4; 1970s: 12.1 v 13.7; 1980s: 12.1 v 13.7; 1990s: 12.1 v 13.7; 2000s: 12.1 v 13.7

This metric demonstrates the portion of the fund exposed to the most carbon-intensive sectors. This metric is calculated consistently with the guidance for Asset Owners contained in the TCFD, however the sectors that constitute the carbon-related assets have been adjusted for characteristics of the Australian benchmark.

The following Global Industry Classification Standard (GICS) sectors have been included in the analysis:

  • Energy

    Activities in the energy sector include companies whose business directly relates to the exploration and production of fuels used primarily for energy, including those businesses that produce equipment or provide services for activities like oil and gas drilling.

    Industries that are major contributors to the carbon intensity of this sector includes companies involved in the supply of oil and gas as well as those involved in the production and mining of thermal coal for the generation of energy.

  • Materials

    The Materials sector includes companies involved in the manufacture of construction materials like cement, concrete and bricks, metals and mining companies, including those that mine gold, silver and copper, and those involved in the production of aluminium and steel. This sector also includes chemical producers, producers of metal and glass as well as paper packaging and those that produce paper and forestry products, like timber.

    The high carbon intensity in this sector largely results from companies that produce concrete and cement, which emit emissions during production and require a large amount of energy to produce; and those involved in the production of paper and forest products, which generate emissions in the production of wood fibre and timber based products.

    Companies in the metals and mining industry also have high carbon intensity. Carbon emissions occur during both the mining activity as well as in the smelting process used for the production of materials including copper, aluminium and steel.

    BTFG has expanded on the guidance of the TCFD, including the Materials Sector as this sector contributes significantly to the Australian benchmark’s carbon footprint.

  • Utilities

    The utilities sector encompasses industries that produce and distribute electricity and gas, multi-utilities, those with significantly diversified activities in addition to core electric, gas and/or water utility operations and those categorised as Independent Power Producers and Energy Traders.

    Carbon emissions in the electricity sector are largely a result of electricity generated through the burning of fossil fuels, including coal and gas. Whilst the equivalent carbon emissions from methane produced by gas utilities is a major contributor to the carbon intensity of this sector.

    In line with the recommendations of the TFCD, for the purposes of our carbon disclosures BTFG has excluded the Water Utilities industry and Renewable Electricity sub-industry from this analysis, as neither are major sources of carbon emissions.

    BTFG has expanded on the guidance of the TCFD by including the Independent Power Producers and Energy Traders sub-industries in the analysis of our portfolios. This sub-industry includes fossil fuel based power production and is one of the of the higher intensity sub-industries in the international benchmark. 

Each metric is provided at a portfolio level relative to a benchmark portfolio composed of globally recognised indices.

Whilst BTFG does not actively manage to a carbon benchmark, the analysis is used to understand where risks may lie within the portfolio, and to provide customers with information on the investments they hold.

A negative variance against benchmark means the individual product/investment option is less emissions intensive as compared to its benchmark.

Engagement

BTFG's approach to managing investment risk associated with climate change is primarily focussed on  active ownership, through engagement and exercising voting rights. Our focus is on encouraging the companies we invest in to understand and address climate-related risk in their portfolios. This is a critical step in the low carbon transition.

Overview

Engagement involves a dialogue with directors and senior management of invested companies to achieve beneficial change on risk management, governance, sustainability and disclosure and business practice to improve long-term shareholder value. It can also involve discussions with regulators, professional bodies and others.

BTFG uses the services of engagement partners who act collectively for investors, holding dialogues with listed companies to advocate for ESG improvements that address material risks relevant to the long-term investment outlook. BTFG engages with Australian (ASX) listed companies through the services of Regnan – Governance Research and Engagement PTY LTD and Hermes Equity Ownership Services Limited for companies listed on international exchanges. 

Engagement on climate-related issues currently focusses on a number of key topics. Across all industries we are seeking to influence how companies manage their climate-related risk and to drive positive outcomes. Issues we engage on typically include:

  • Measurement and disclosure of climate-related risks in accordance with the recommendations of the TCFD;
  • Energy sector transformation and/or decarbonisation;
  • Approach to carbon and climate in financial services;
  • Climate resilience; and
  • Fossil fuel transition.

Where BTFG acts in its capacity as fiduciary, we do not support an overarching process limiting the investible universe of our investment managers as an appropriate method of influence regarding climate-related risk at this time. 

TCFD alignment

The TCFD was formed by the Financial Stability Board (FSB) to develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders.

These are contained in the `Recommendations of the Task Force on Climate-related Financial Disclosures' and are available on the FSB TCFD webpage. 

Governance

BTFG’s approach to climate change takes into account Westpac Group policies and governance frameworks. More information regarding Westpac’s approach to climate change can be found in the Westpac Group 2017 Sustainability Performance Report.

The Board of Westpac, its executive team and the Sustainability Council oversee the consideration of all ESG risks, including climate-related risk, within the Westpac Group. The adoption of strategies for managing ESG risks in BTFG’s superannuation funds is a matter for the independent BTFG Trustee Boards ensuring any ESG decisions are in the best interests of investors.

Strategy

The Westpac Group Climate Change Position Statement and 2020 Action Plan outlines the group’s strategy for managing climate-related impacts. This incorporates the consideration of carbon and climate-related risks in BTFG. Further information on our approach to climate related risks and opportunities is provided above.

Risk management

Within Westpac Group the approach to climate-related risk is guided by the group wide sustainability risk management framework, which forms part of the group’s overall risk management approach. Additional information on how BTFG addresses specific climate-related risks in our investment portfolios has been included above. 

Metrics

Management of the direct emissions from BTFG is incorporated in the voluntary and regulatory reporting of Westpac Group. Information on our approach to measuring and reducing our direct carbon emissions can be found in the Westpac Group 2017 Sustainability Performance Report.

In addition BTFG discloses a number of key metrics, as described above, to provide members of our superannuation funds with information regarding the carbon exposure of their investments. We are committed to expanding our disclosures, as required, to ensure both our customers and broader stakeholders have access to information to assist in their wealth management decisions.