Danish pension funds have been at the forefront of discussions on how to achieve the nation’s ambitious goal to reduce greenhouse gas emissions by 70% from 1990 levels by 2030.
With just eight years to achieve that target, the pensions lobby has been pushing for clarity about the proposed investments in green projects. Pension funds say the government must act to make more projects investable.
Last month, ATP announced it was investing in a project to build a geothermal power plant in Jutland. Because geothermal energy is renewable and stable, unlike solar and wind, ATP’s chief executive officer Bo Foged said it was needed for the green transition. The plant will meet up to a fifth of Aarhus’s heating demand, and will be the biggest such installation in the EU, according to its developers.
Apart from using its financial clout for such investments, ATP is also driving companies to open up about exactly what their climate impact is. Behind its pre-COP26 €27bn green investment pledge, the pension fund also announced it would be requiring all portfolio companies to report their CO2 emissions by 2025. Such efforts could have a big impact, allowing other investors to make better climate decisions.
Denmark’s launch in mid-January of its first-ever green government bond showed the huge volumes of capital institutions want to direct into its climate and environmental plans. Auction demand for the new green paper – issued alongside conventional debt according to the liquidity-enhancing twin-bond concept – outstripped supply almost five times over, pressure which resulted in a 5bps yield premium compared with the conventional 10-year bond.
But it also leaves potential pension fund buyers with a dilemma. From a supervisory point of view, how can they justify investing in assets that give their members a lower return than conventional government bonds?