Super fund HESTA "unconvinced", to vote against AGL demerger

Superannuation fund HESTA is backing the position of Australian tech billionaire Mike Cannon-Brookes, today announcing it will vote against the proposed AGL (ASX: AGL) demerger next month as it urges the energy giant to take further proactive measures to reach net-zero emissions.

HESTA – which owns a 0.36 per cent stake in AGL, worth $21 million – said it was “unconvinced” the plan to split AGL would “sufficiently accelerate decarbonisation to meet Paris-aligned targets” or “manage the risk of stranded assets.”

If 75 per cent of shareholders vote in favour of the proposal, AGL will be split into two entities: energy retailer AGL Australia and Accel Energy - a company that will focus on repurposing existing electricity generation sites into low-emission industrial energy hubs.

HESTA's stance on the split comes only a week after Cannon-Brookes launched a campaign against AGL’s proposal to 150,000 shareholders. In a letter addressed to investors, he said Accel Energy would rely on fossil fuels for 90 per cent of its energy generation.

In an attempt to thwart the board’s demerger strategy altogether, the Atlassian co-founder purchased an 11 per cent stake in AGL via his investment vehicle Grok Ventures earlier this month - making him the company’s largest shareholder.

HESTA CEO Debby Blakey said that AGL "cannot simply divest away from the risk of Australia being slow to transition to a low-carbon future."

“Responsible investors have a responsibility to their members to go to where the biggest emissions are and as owners try and first change the behaviour of these companies," Blakey added.

“The events at AGL represent a watershed in active ownership in this country. Shareholders are pushing for greater action on climate change and a more rapid transition that aims to enhance the company’s ability to create long-term, sustainable value.”

However, the AGL board is adamant the demerger is in the best interests of investors and will position each company to “create long-term shareholder value”. In its proposed plan, all coal operations under Accel Energy would transition by 2045.

"A stand-alone company owning AGL’s coal-fired power plants risks making it more difficult for Australia to transition to a low-carbon future," HESTA said.

"We believe this company would struggle to make the transition out of coal successfully were power prices to fall or the transition further accelerated to limit the worst impacts of climate change."

Should the demerger be approved, existing AGL shareholders would receive one share in AGL Australia for every share in AGL Energy held. In addition, Energy shareholders would also retain their existing shares once the company is renamed Accel Energy.

“AGL is one of Australia’s biggest emitters, with their emissions effectively flowing right through our portfolio,” Blakey said.

“If AGL commits to Paris-aligned emission reduction targets this will have a hugely positive impact on Australia’s pathway to net zero, lowering the overall systemic risk exposure of our members’ investments,” she added.

HESTA's announcement comes more than two months after AGL rejected two takeover bids from a consortium led by Brookfield Asset Management, which the Grok founder was involved in.

The second offer valued the target at approximately $5 billion, but was knocked back by the board, who stated they were making “strong progress on the demerger.”

Shares in AGL are up 0.70 per cent at $8.59 each at 11:52am AEST.