Germany’s nuclear waste management fund KENFO is excluding infrastructure assets in the oil and gas sector from its investment portfolio, unless they comply with net zero targets set by the Net Zero Asset Owner Alliance (NZAOA), according to a reply by Udo Philipp, state secretary for the Federal Ministry of Economic Affairs and Climate Action, to a parliamentary inquiry.
KENFO “will not provide new financing” for infrastructure assets in the oil and gas sector that are not in line with NZAOA’s targets, according to his reply.
In concrete terms, this means, among other things, that KENFO does not investment in new, unlisted infrastructure projects for oil and gas unless they are in line with international targets for limiting the temperature increase by 1.5°C, a spokesperson for the sovereign wealth fund told IPE.
The exclusion list includes new infrastructure projects for oil and gas fields, unless financial resources have already been committed by the end of 2021 (upstream), investments in oil and gas pipelines that have not been completed and commissioned by the end of 2022 (midstream), and unless they are linked to measures to reduce CO2 emissions and, among others, refineries and petrochemical plants (downstream), provided they were not already completed and put into operation at the end of 2022, the spokesperson explained.
KENFO already has a very high allocation – around 40% of its assets – in the energy transition and renewable energy sectors as part of its unlisted infrastructure portfolio, the spokesperson said, adding that it continues to strive for a high allocation quota in these sub-sectors.
Engaging, not divesting
KENFO’s view is that sustainable and responsible investments do not mean “an immediate and complete exit” from capital market investments in companies in the field of fossil fuel energy and commodities, the state secretary added in his reply.
By excluding certain sectors, CO2 emissions would not be reduced. KENFO uses opportunities for dialogue and exercises influence on the asset managers it mandates, the spokesperson said.
Many oil and gas companies are in the midst of changing their business models and require significant financial resources to go through this phase, the state secretary added.
KENFO could remain invested in companies taking the opportunity to influence the behaviour of such companies, and accompany the transformation of their business models to achieve a “real reduction” in terms of emissions, Philipp added.
KENFO reserves the right to disinvest in the event a company has not made sufficient progress towards a climate-neutral business model, it said.
The fund has set itself as an interim goal a 20% emissions reduction in its equity and corporate bonds portfolios between 2019 and 2024. Its portfolio emissions intensity fell by 57% in the period from the end of 2019 to the end of November 2023, according to Philipp.
It excludes from its pool of investments companies active in sectors including coal mining and electricity generation, nuclear power plants, uranium mining and with operations in uranium mines, and oil and gas extraction through fracking, adopting a best-in-class approach, underweighting the fossil energy sector compared to benchmarks, he added.