Denmark’s largest commercial pension fund, PFA, has announced a significant reduction in the carbon footprint of its equity portfolio in the first six months of this year – a period in which it now reveals it sold several oil and gas equities.
The DKK599bn (€80.5bn) pension fund said the latest climate review of its equity portfolio shows that at the end of June, the assets had 21% less CO2 emissions per million dollars invested than the MSCI All Country World Index – and that this gap had widened over the first half from the 16% reported at the end of 2019.
Kasper Ahrndt Lorenzen, PFA’s group CIO, said: “In addition to the fact that a smaller CO2 footprint is of course good for the climate, it also means that our equity portfolio is exposed to fewer climate-related risks.”
He added that a CO2 reduction supported both the environment and the pension fund’s ability to provide strong, risk-adjusted returns.
The pension fund said the equity portfolio for the new market-rate, climate-focused investment option PFA Climate Plus – which it launched this year – had been shown to emit 78% less CO2 than per million dollars invested than the world benchmark it used for comparison.
In absolute terms, the carbon footprint of PFA’s equity portfolio was 100.7 tonnes of CO2 per million US dollars invested at the end of June, compared to a score of 126.8 for the MSCI ACWI and just 28 for PFA Climate Plus, according to the data published by the pension fund.
PFA also said it had been putting particular focus on oil and gas firms within its portfolio in the first half of 2020, and that this had resulted in a “number of divestments”.
Ahrndt Lorenzen said PFA’s focus on sustainability had to be seen in a broad sense and not just as being aimed at the CO2-heavy sectors, although he said there was no doubt that oil and gas companies in particular were among the CO2-intensive.
“However, we find that more and more of the companies are working to restructure and adapt their business, and we would like to support this development,” he said, but added that the pensions firm did also recognise that this placed special demands on active ownership.
“By reducing the number of oil and gas companies in the portfolio, we can now, to a much greater extent, interact directly with the smaller number of companies and thus gain greater insight and understanding of the business and objectives,” Ahrndt Lorenzen said.
Earlier this year, PFA explained why its approach to fossil fuel firms involved engagement, after facing criticism from non-governmental organisations (NGOs) in the local media on its continued investment in oil, gas and coal.
PFA Climate Plus is based on a portfolio with no investments in either oil, coal or gas, and with the goal of becoming carbon-neutral by 2025 and carbon-negative by 2030.
Rival pension provider Danica Pension announced the launch of its own climate-friendly pension product – Danica Balance Sustainable Choice – earlier this month, for which it chose investments that actively contributed to climate mitigation, health, food production and other UN Sustainable Development Goals (SDGs).
Looking for IPE’s latest magazine? Read the digital edition here.