Dutch healthcare scheme PFZW last month reluctantly changed its 50% CO2 reduction target for 2030 from a relative to an absolute target, following in the footsteps of fellow Dutch pension funds ABP and PME. The fund cited the “negative sentiment” around relative targets as a reason for its change of heart.

When the largest Dutch pension fund ABP announced an absolute 50% reduction target for 2030 last December, it said such a target was a “better fit to what we need than a relative target correcting for revenues or assets under management”. It is indeed hard to see how a relative reduction target for 2030 matches with an absolute net zero goal for 2050. After all, absolute carbon neutrality can only be reached by setting absolute goals.

For now, however, most pension funds and nearly all asset managers prefer to stick to relative reduction goals, comparing their own portfolio emissions to company revenues or to their assets under management. Using the former method, firms can achieve a reduction in emissions by simply increasing their prices, as many companies have done over the past year.

However, if we are to limit global warming to 1.5°C or even 2°C, real CO2 emissions need to come down, not emissions related to some kind of metric. The latter method, relating emissions to assets under management, probably stems from the habit of the asset management industry of reporting costs as a percentage of assets under management.

But it makes little sense to relate a company’s carbon emissions to the performance of its share price. Under this method, if the value of an investor’s portfolio doubles between 2019 and 2030 (a goal that the MSCI World index actually achieved over the previous 10-year period), the company does not even need to do anything to reduce its absolute emissions.

Only three Dutch pension funds have adopted absolute carbon reduction goals for 2030. From a total of some 180 funds, that number sounds negligible. But together they account for a large majority of pension assets in the country. Will others follow their lead?

Tjibbe Hoekstra, Netherlands Correspondent