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Dutch regulator keen to involve pension funds in 'energy transition'

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A director at Dutch regulator DNB has suggested pension funds should contribute more to the “energy transition” towards a carbon-neutral society following the country’s ratification of the Paris Climate Agreement.

In an interview appearing in pensions administrator AZL’s internal magazine, Job Swank, director for monetary affairs and economic stability at DNB, said Dutch pension funds should demand that the companies in which they invest use the funds for “green innovation”.

He said pension funds, due to their long investment horizons and expertise in dealing with large assets, would be well-suited for the measures that must to be taken.

“The pensions sector could be the engine of the green economy,” he said.

Swank called for increased transparency – “at least for the next 20 years” – about the steps the government intends to take to achieve its climate goals during the course of this century.

According to the DNB director – who is also a professor of economic policy at Rotterdam’s Erasmus University – pension funds are more susceptible to large changes on the energy market than insurers, “as they have relatively large holdings in equity and commodities”.

He said that no less than 12% of pension assets had been invested in carbon-sensitive sectors, and that pension funds’ combined investments in “green and sustainable” were less than 0.5% of total pension assets.

Swank said the regulator had looked into the energy issue because of its responsibility for economic development.

He said the supervisor had consulted sector experts, the business community, NGOs and some large pension funds, adding that the DNB had also looked at investments in fossil fuels, polluting industries and sustainable energy.

According to Swank, pension funds show an increasing willingness to embrace the energy transition – and not solely due to risk management.

“They also want to know who the good players are to invest in,” he said.

Swank, however, also said he was aware the green market was still small.

“The pensions industry needs the scale for large investments,” he said.

Loek Sibbing, chief executive of the Dutch Investment Institute (NLII), recently highlighted the potential for pension funds to invest in the energy transition.

In an open letter, he called on all political parties to help create more attractive investment projects for pension funds.

Sibbing cited consultancy McKinsey, which recently estimated that the energy transition would require €200bn of investment in the Netherlands over the next 20 years.

He said pension funds were willing to invest “dozens of billions” in the energy transition.

Meanwhile, the regulator has said it is developing a climate stress test to clarify how climate risk affects the financial sector.

It said the effects of climate change would be discussed in the new, DNB-chaired Platform for Sustainable Finance.

The participants in the debate – including the Dutch Pensions Federation, the Association of Insurers (VvV), the Dutch Society of Banks (NVB), the Dutch Asset and Fund Management Association (Dufas), the Sustainable Finance Lab and the ministries of finance and infrastructure and environment – are to share expertise and co-ordinate initiatives.

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