HCF has become the first Australian private health fund to divest from fossil fuels, having decided that the industry harms the health and wellbeing of its members, pulling about $20m out of fossil fuel companies in Australia and overseas.

In a letter to the campaign group Market Forces dated 15 December 2016, HCF said it would be divesting from fossil fuels on the same ground it used for pulling out of the tobacco industry.

HCF has not announced the move publicly but confirmed it to Guardian Australia, saying it expected to have sold all its shares in fossil fuel-related companies by the end of March.

In HCF’s latest annual report, it said it had $2bn invested in a diversified portfolio. A spokesperson for the company told Guardian Australia about 1% of its investments were in fossil fuels. That appears to mean the company will be removing $20m from the fossil fuel industry.

HCF said it had not announced the decision publicly because it was not intended to generate publicity, but it would consider an announcement after the divestment process was complete.

Market Forces and health professionals have applauded HCF’s move.

The surgeon Kingsley Faulkner, the national chair of Doctors for the Environment Australia, said: “Responsible health organisations are making a stand and we are delighted that HCF has decided to join them and divest from fossil fuels.

“The health consequences of climate change are becoming increasingly apparent in many countries including Australia. The predicted health impacts of failing to [take action] are huge. History will be harsh on those who fail the moral and political challenge to act without further delay. As with tobacco control, Australia could again become a leader rather than a reluctant follower.”

Most major health and medical bodies have warned of the extreme impacts climate change will have on human health.

The World Health Organisation has estimated that climate change will kill 250,000 people a year between 2030 and 2050 by increasing the rates of malnutrition, malaria, diarrhoea and heat stress.

The Australian Medical Association released an official position statement on climate change and human health in 2015, which said: “The consequences of climate change have serious direct and indirect, observed and projected health impacts both globally and in Australia.”

The then president of the AMA, Brian Owler, said: “There are already significant health and social effects of climate change and extreme weather events, and these effects will worsen over time if we do not take action now.”

But health funds have so far been slow to accept the consensus, according Julien Vincent, the executive director of Market Forces. “Health funds have led the broader divestment out of tobacco and in many cases munitions, acknowledging the hypocrisy of investing in products which threaten human health,” Vincent said.

“As the first fund to take the step, we applaud HCF for making the right decision in shifting away from fossil fuels as well. HCF’s commitment has added an entire new sector to the fossil fuel divestment movement and this should send a clear message to all private health funds, which have nearly $13bn under management, that fossil fuels are bad for our health.”

“A wave of health funds divesting from fossil fuels may be the catalyst for passive index managers like Blackrock, State Street and Vanguard to finally produce a fossil fuel-free product for the Australian market.”

The renowned epidemiologist, public health researcher and 2003 Australian of the Year Fiona Stanley said: “Human health and financing fossils fuels are fundamentally incompatible.

“Institutions that are concerned with protecting and improving people’s health should be doing everything they can to steer our economy away from fossil fuels.

“Fossil fuels are a major contributor to air pollution, which is now close to tobacco as a leading cause of death globally. Moreover, the greenhouse gas emissions from burning fossil fuels will put people’s health at risk for generations as climate change impacts take effect.”

At its annual meeting in November, executives of Medibank faced questions from shareholders about the health impacts of fossil fuel companies that it was investing in.

In response to one question, the company’s non-executive director Peter Hodgett said the Medibank had divested from tobacco but would consider further divestment, including from fossil fuels.

“In other areas the jury is still out about how much harm is done by these various other items relative to the good and the economic need for them in society,” Hodgett said. “We’ve drawn the line at tobacco but we continue to be open to discussion on these issues.”

A spokesman for Medibank said the company was still “open to discussion on these issues”.

“We’re of course proud of our work on the tobacco divestment and will continue to listen and work collaboratively with our shareholders, customers and stakeholders,” the spokesman said.