The German Party, is calling for an overhaul to the North-Rhine Westphalia (NRW) Pensionsfonds’ investment strategy to completely adopti an ESG stance.

Divesting from equity indices, including the extraction and burning of fossil fuels, is the only approach that makes sense from an ecological standpoint, said Green parliamantarian Monika Düker in a speech to the NRW regional parliament this week.

The Pensionsfonds has been subject to criticism for adopting contradictary policies for its sustainable investments when, at the beginning of the year, the Ministry of Finance for the NRW said fossil fuels extraction had never been used as exclusion criteria for ESG policies in view of the economy in NRW.

NRW commissioned Stoxx, a subsidiary of Deutsche Börse, to develop two sustainable equity indices – covering the euro-zone and ex euro-zone  – in partnership with the governments of Baden-Württemberg, Brandenburg and Hessen.

The NRW Pensionsfonds has gradually reallocated a total €1.71bn into exchange-traded  funds tracking the EuroStoxx50 and the DAX indices in a new eurozone sustainable index, according to NRW’s financial statement.

The fund deployed versions of the indices that do not exclude fossil fuel extraction.

“Lutz Lienenkämper, our finance minister, has justified the non-exclusion of fossil fuels from the investments by saying that coal-fired power generation is still a bridging technology to be taken into account when choosing the stock indices,” Düker explained.

In a motion discussed in local parliament, the Greens highlighted concerns brought about by the financial supervisory authority BaFin, the European Banking Authority (EBA), and also ’traditional’ investors such as BlackRock and Vanguard on so-called “stranded assets” in the fossil fuel sector.

A sustainable investment strategy serves not only ecological purposes, but also the long-term economic interests of NRW, the Green parliamentary group said.

Strategic contradictions

According to the Pensionsfonds’ guidelines on asset allocation, investment strategy must be reviewed regularly, at least every three years. NRW’s ESG guidelines for capital investments are a mix of exclusion and best-in-class principles.

The Greens accuse the NRW government of avoiding to answer the question as to whether it fully follows a best-in-class approach.

“Fossil fuels still play a major role for investments,” the Greens said in the motion, pointing to a €100m equity investment by the fund in French oil company Total.

“[Total] clearly does not meet the best-in-class principle,” the Greens added. Therefore, the MPs call on government to factor the best-in-class approach and ESG standards in the investment process, to return to “a more sustainable and stable investment strategy for pension fund.”

Investments in companies generating energy by burning coal are “ecologically unacceptable and a high financial risk,” the party said.

This article has been amended for clarity

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