Norway’s KLP has published a detailed roadmap of how it plans to achieve net-zero greenhouse gas emissions from its portfolio by 2050, revealing that the strategy involves holding onto high-emitting sectors such as oil and gas.
KLP has previously announced goals to support the below 1.5°C goal of the Paris Agreement.
A key feature of the roadmap for net zero emissions in 2050, which was approved by the NOK871bn (€86.5bn) municipal pension provider’s board in August, is that KLP’s entire investment portfolio will be aligned with the 1.5°C target – meaning it will consider each individual assessment in light of that goal.
The Oslo-based institutional investor said: “KLP’s solutions differ from others in that we set requirements for the entire portfolio, also where data is lacking.”
It also said it put great emphasis on transparency, explaining in the detailed report all key criteria of its net-zero strategy implementation.
“KLP will not divest from oil and gas, cement and steel production or other high-emission sectors, but will ensure that these investments comply with the Paris Agreement by 2025,” the pensions firm said.
It said these assessments were to be made using the impartial methods employed by the Norwegian Financial Supervisory Authority and others.
KLP said it was launching the roadmap in the wake of the Norwegian government-commissioned expert report on climate risk in the Government Pension Fund Global (GPFG), which supported a similar target.
KLP said Jonas Gahr Støre and the Labour Party had already publicly supported this proposal for the country’s sovereign wealth fund. The Labour Party is expected to form Norway’s next government following a strong result in the recent general election.
In a list of specific climate measures it would now implement in the light of the climate target, KLP said it would now invest $25m (€21m) in an unnamed fund specialising in direct investments in renewable energy.
It said this followed €200m recently committed to a green infrastructure debt fund with Macquarie, and earlier commitments to other renewable energy funds such as Climate Investor One and Copenhagen Infrastructure Partners.
Lars Erik Mangset, chief adviser climate change at KLP, described the firm’s net-zero emissions framework, saying: “The starting point is that we define a global emission trajectory which is consistent with the 1.5°C scenario, based on data from the IPCC and Carbon Action tracker.”
This acted as an external benchmark that KLP aimed to be aligned with over time, he said.
“We include all our investments, from listed equities to corporate bonds to private equity investments. The exception to the rule is public sector investments.
“The emission trajectory calls for an average annual reduction in emissions of -7% every year from 2020 to 2030, and that we reach net-zero by 2050,” Mangset said.
But he said KLP was clear that the implementation of the net-zero goal would not compromise its main objective of secure and competitive pensions management.
“If the real economy does not transition towards a low carbon economy, then, over time, it may become unrealistic for KLP to remain committed to the net-zero goal”
Lars Erik Mangset, chief adviser climate change at KLP
“If the real economy does not transition towards a low carbon economy, then, over time, it may become unrealistic for KLP to remain committed to the net-zero goal,” he said, adding that this was probably also true for many similar institutional investors.
“However, we need to accept this uncertainty, and importantly we must accept that we can set ourselves high ambitions even if the road is created as we move along. It shouldn’t stop us from doing something,” he said.
On the question of why KLP would remain invested in oil and gas, Mangset said a fundamental principle of the framework was that KLP should be science-based as far as possible.
“In practice, this means that we assess current transition scenarios from trusted sources such as the IPCC or the IEA that define what a transition in high-emitting sectors needs to be to succeed with the Paris agreement ambitions.
“These tell us that while oil and gas activity can continue, it needs to be significantly reduced the next decades,” he said, adding that there were different pathways for oil and for gas.
“In KLP’s net-zero framework, all our alignment assessments are based on provisions that are given by third parties, and this is the one reason why we will remain exposed to oil and gas,” he said.
Another reason was that there were arguments oil and gas companies had to play an important role in reaching the Paris goals, according to Mangset.
“Our view right now is that we should prioritise engaging with these companies,” he said.