Dutch healthcare scheme PFZW aims to reduce the carbon intensity of its equity and bond investments by 50% compared to 2019. By 2030, 15% of total listed assets will also have to be invested in three climate-related SDGs, the pension fund announced in its new climate plan.
The 50% goal for 2030 follows a 30% reduction goal for 2025 that had been set several years ago. The €258bn fund will measure its carbon intensity in two different ways: it will track carbon emissions per euro invested, and per million dollar revenues of its investee companies.
Most institutional investors who have set carbon reduction goals so far have opted for relative rather than absolute targets too, but tended to choose for one specific method to measure emissions. PFZW, however, does not want to make a definite choice for either definition.
“We don’t want to choose because the method based on market capitalisation is more suitable for some investments, while the revenue-based method may be better for others,” a spokesperson for the fund said.
The pension fund is not setting any absolute reduction targets, in addition to its goal to be carbon-neutral by 2050. “A relative measurement method makes it easier to compare the carbon score of small and large companies with each other,” according to the spokesperson.
The 2030 reduction goal follows PFZW’s signing of the Paris Aligned Investment Initiative earlier this year. By signing this agreement, the pension fund also committed to formulating five-year sub-goals for each asset class with regard to the percentage of assets that should be Paris-Aligned.
15% in climate investments
PFZW wants to have invested 30% of its assets in the Sustainable Development Goals (SDGs), with half of these investments going to climate solutions.
The pension fund considers all investments in the SDGs 7 (Renewable and Affordable Energy), 11 (Sustainable Cities & Communities) and 13 (Climate Action) as climate-related.
However, as the fund’s spokesperson acknowledged, not all investments in SDG 11 have much to do with mitigating climate change. For example, PFZW considers investments in fibre networks as contributing to this SDG. It’s not clear how much PFZW currently invests in the SDGs.
The fund is currently in the process of adjusting the methodology it uses to determine whether an investment is compatible with the SDGs.
Real estate and infrastructure
PFZW has for the first time also formulated CO2 reduction targets for its non-listed investments. All investments in real estate and infrastructure will have to be Paris-Aligned by 2030, or must have “credible plans” to become aligned with the Paris Agreement.
Private equity investments will get an additional 10 years to comply “because of the larger degree of uncertainty by which change in this asset class can be implemented”. Any new investments in either category will only get one year to make a plan for Paris Alignment.
PFZW recognises that it may not be able to meet its carbon reduction targets in time. “After all, the world economy emits CO2 because part of the emissions simply cannot be avoided because to do so would be impossible, challenging or too costly. Therefore, carbon compensation is a necessary instrument to reach carbon neutrality,” PFZW said in its climate plan.
However, PFZW currently has no plans to use carbon compensation. The methods that are currently available, such as planting trees are not deemed sufficiently credible.
“There is doubt as to whether it’s possible to plant enough trees to compensate for emissions. Therefore, compensation should come from different and also from new technologies that do not yet exist,” the fund’s spokesperson said.