Four Swedish professors have lambasted a political push for the country’s national AP pension funds to contribute to climate policy by investing in an exclusively sustainable manner.
John Hassler, professor of economics, IIES, Stockholm University, along with three academic peers, wrote in a column published in Swedish newspaper DN last week: “The government has so far put pressure on the public pension funds to increase holdings of shares and bonds classified as green and to withdraw from owning fossil activities.
“This risks reducing future pensions, but cannot be expected to make a significant difference for the climate.”
The large pension funds should instead use their broad holdings in listed companies to seek to influence the transition by owning and controlling the companies, the four men said.
Hassler, alongside Bo Becker, professor of financial economics, and Per Strömberg, professor of financial economics – both at SHOF, Stockholm School of Economics – and Jonas Nycander, professor of physical oceanography, MISU, Stockholm University, called on Sweden’s new minister for financial markets, Åsa Lindhagen, to ensure that those who decided on Swedes’ savings did so “on the basis of realistic expectations”.
They warned that green investments could not serve as the main tool for the transition, and that the key means for making the world climate-neutral was rather to price carbon dioxide emissions and that it could be done through carbon taxes or emissions trading.
“The purpose of withdrawing from fossil fuels is also to discourage investments in them by reducing their profitability. The problem is that for three reasons this tool is far too weak to have any important effect,” they said.
Firstly, the stock markets were only one source of funding for brown investments, the men said, which could be financed outside the stock markets or in other countries, and that most were financed internally and therefore unaffected by financing conditions.
Secondly, they said: “If Swedish pension funds sell oil shares, oil investments will therefore be more profitable for others”, because the price of the securities would fall.
As a third point, the academics said that if sustainability-orientated investors withdrew from the fossil-fuel industry entirely as stakeholders, they would lose the ability to influence such companies in a more positive direction, placing this power in the hands of other “probably less responsible” investors.
In other arguments, the academics said that though returns on green investments had been very good over the last year, decades of financial research showed one should be sceptical.
“Throughout history, it has not worked to increase long-term returns by using generally-known information without at the same time increasing the risk,” they said.
They also said that though the global transition to green energy would require costly investment, lack of capital was not the problem.
“At home, in Sweden and in the EU, there is no indication that the transition to climate neutrality is delayed by a lack of capital,” they said.
An excessive belief in the return potential of green investments could risk a capital flight if expectations were not met, they warned.
“The transition to climate neutrality is necessary and we are optimistic that it will take place,” Hassler and his peers concluded.
“For it to do so, climate policy must be based on realistic expectations of what works and what does not,” they said.