'Risks, returns, and decarbonisation': AGL shares scrubbed from $68b superfund's climate watchlist

HESTA has welcomed progress made on AGL's decarbonisation strategy.

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Key points

  • Leading superfund HESTA has removed AGL from its climate 'watchlist'
  • Companies on the watchlist face heightened engagement in their role in the energy transition, the escalation of which could see the fund considering divesting their shares
  • The fund believes AGL's climate transition action plan "more appropriately balances risks, returns, and decarbonisation"

AGL Energy Limited (ASX: AGL) was among four S&P/ASX 200 Index (ASX: XJO) energy shares warned by leading superfund HESTA to clean up their act or risk facing divestment last year. And the company's made notable progress on that front.

In a symbolic move, the superfund – housing $68 billion of assets – removed the historic energy retailer from its climate 'watchlist' yesterday. HESTA general manager of responsible investment Kim Farrant commented on the change:

We currently believe the approach AGL and its management team have outlined to shareholders more appropriately balances risks, returns, and decarbonisation.

The AGL share price is trading at $7.73 at the time of writing.

Let's take a look at the green tick that's been etched into Australia's highest carbon emitter.

Own AGL shares? The company's been granted a climate tick

HESTA – a holder of AGL shares – has removed the company from its climate watchlist, reducing its risk of 'engagement escalation'.

Such escalation could have seen the superfund voting against the company's advice on resolutions or director elections and could have led it to consider selling its stake.

The mammoth superfund welcomed the progress made on AGL's climate transition action plan yesterday. It also said it supports the appointment of Damien Nicks as permanent CEO.

The company revealed its $20 billion plan to ditch coal by 2036 last year. Abandoning coal is expected to leave it with net zero emissions.

The action plan followed the abandonment of AGL's controversial proposal to split into AGL Australia and Accel Energy.

But HESTA isn't sated yet. Farrant said "more detail is needed" on the company's energy transition plan, saying:

We continue to believe that there is additional scope for AGL to continue to develop its decarbonisation ambitions in alignment with the 1.5°C pathway including bringing forward coal-fired power generation closure dates through effective strategy execution and growing investment in renewables and storage.

HESTA is still the lead investor through Climate Action 100+ and will continue engaging with AGL on its decarbonisation plans.

AGL and Origin Energy Ltd (ASX: ORG) have both been removed from the superfund's watchlist, while ASX 200 shares Santos Ltd (ASX: STO) and Woodside Energy Group Ltd (ASX: WDS) remain on its climate radar.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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