From 2024, Dutch healthcare pension fund PFZW will no longer invest in fossil fuel companies that do not demonstrate a “convincing and verifiable” climate transition strategy in line with the 1.5°C goal in the Paris climate accord, it said today.
The €277.5bn fund, which aims to have a climate-neutral investment portfolio by 2050, indicated the divestment would be staggered, starting with companies that do not already have a reduction target for greenhouse gas emissions.
If companies did not make a clear commitment to the Paris Agreement’s 1.5°C target by the end of 2022, investments in these companies would be sold in 2023.
The “convincing and verifiable” climate transition strategy that PFZW is asking companies for by the end of 2023 must include short and medium-term targets in line with the Paris Agreement. If they do not back up their commitment in this way, the companies will no longer be eligible for investment in 2024.
Joanne Kellermann, chair of PFZW, said that when it came to climate change, “we must bring investments in line with what ‘Paris’ demands: limit global warming to 1.5°C”.
She said that if companies in the fossil fuel sector did make the desired transition, “PFZW, as a committed and critical shareholder, will continue to encourage these companies to fulfil their role in society: actively contributing to a climate-neutral world by 2050”.
“This new step is in line with our fund’s long history of sustainable investment and the values of our participants,” she said.
It comes after the pension fund in 2020 announced it was aiming to cut the carbon footprint of its listed equity portfolio by 30% by 2025, but would continue to invest in fossil fuel companies, with intensified engagement efforts.
PFZW currently has about 170 companies in the oil and gas sector in its portfolio, according to a spokeswoman for the pension fund. This amounts to €4.5bn, around 1.7% of the portfolio. Last year climate activists targeted PFZW, following their apparent success in encouraging civil service scheme ABP to ditch its fossil fuel investments.
PFZW today also announced a further tightening of its coal and tar sands policy. Holdings in companies whose turnover depends on the production of coal for more than 5% or on tar sands for more than 1% will be sold; the previous thresholds were 30% and 10%, respectively.
A spokeswoman for PFZW told IPE that the pension fund will use the Transition Pathway Initiative (TPI) framework to assess companies’ commitments and strategies.
“This provides an objective, transparent and global dataset to determine where a company stands in the transition in line with ‘Paris’,” she said.
According to PFZW, the divestment-oriented timeline it has decided gives fossil fuel companies the opportunity to implement a viable plan to reform their business models. It said that during this period, it would intensify its shareholder dialogue with companies willing to make the transition.
It also said it would use its voting rights “more emphatically” in climate-related resolutions and board proposals, with specific attention to be paid to stopping extraction in Arctic areas.
It also said that it would insist companies stop any investments in new fossil fuel supply. If necessary, it would oppose the (re)appointment of directors who were making insufficient contribution to the company’s transition.
To the extent possible, it added, PFZW would join forces with like-minded parties to strengthen its influence.
PFZW has three times as much money invested in renewable energy as it does in the fossil fuel industry, as previously reported by IPE. The fund is planning to increase its green investments further over the next few years.
World on track for 3.3°C, says Schroders
The long-term increase in temperature the world is currently heading towards has fallen to 3.3°C as of the end of December 2021, down from the 3.4°C in sight at the end of June 2020, according to Schroders’ Climate Progress Dashboard.
The most recent reading is the lowest since the asset manager launched the dashboard in 2017.
Schroders said the positive momentum since its last dashboard update was supported by the volume of climate commitments made in the run-up to and during COP26. More significantly, it added, oil and gas sectors globally had continued curtailing their investment in new capacity, while carbon prices in Europe continued to reach new records.
“Fossil fuel producers are in the cross hairs of climate campaigners and policymakers, as are the financial services companies that provide capital to them,” said Andy Howard, Schroders global head of sustainable investments. “That constraint has been the major driver of the lower long-run temperature rise implied by climate action since our last update.
“All in all, there is much further to go to align the actions we see across all of the stakeholders, industries and social groups that will play key roles in driving decarbonisation. Progress toward the goals agreed in Paris in 2015 continues, albeit slowly.”