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Pension funds are among the biggest players in the sustainable finance world, a function of their clients’ long-term goals and their massive scale –; individual funds may influence where hundreds of billions of dollars are invested in a given year. However, a lack of green pension options is leading some activist investors to mount court challenges against funds that are resisting green investment, while others are agitated that funds with a sustainability focus are sacrificing financial returns on an ideological altar.
The U.K”;s Social Market Foundation eyes a third way: it”;s pressuring the British government to directly create or enable pension “;superfunds”; to invest in the UK”;s green recovery, via transport infrastructure and renewable energy systems. Some of the globe”;s biggest funds already do that, including the Government Pension Fund of Norway –; the world”;s second-largest –; which receives consistently high sustainability ratings.
Annemarie Meisling, who leads Sustainability & Corporate Affairs at Chr Hansen, a Danish bioscience company, told POLITICO that she has been pushing for 15 years to get Danish pension companies to offer green options. “;Ten years ago they would shake their head and think I was crazy,”; Meisling said. But in environmentally conscious Denmark, pressure has been building. “;The push comes from a lot of angles –; pension funds are such a massive player in society," she said. And in Denmark, "we have a lot of dialogue."
Chr Hansen this month signed up to the new Climate Plus fund offered by PFA, Denmark”;s biggest commercial pension fund. “;Climate Plus is very related to green energy –; wind and solar –; and sustainable building, and also forest investment,”; Miesling said.
PFA”;s Chief Investment Officer Kasper A. Lorenzen said he aims to achieve the same risk via the Climate Plus product as with existing pension products. But he does expect higher short-term volatility due to a “;a more concentrated portfolio consisting of fewer assets.”; PFA is promising that shares in Climate Plus will emit 60 percent less CO2 than the global equity index from launch. The long-term goal is net-zero CO2 emissions by 2025.
Miesling said implementing a green pension system for the company posed a moral dilemma. “;It”;s your pension, it”;s your money: We cannot decide where our employees should put their funds,”; she said, “;but we can nudge them.”; In the end, the company decided that all new employees will have 25 percent of their pension earnings placed in the Climate Plus fund by default. “;They can turn it up or they can turn it down,”; according to their preference, Miesling said. The company also arranged for employees to have one-on-one talks with a pension adviser to guide them through their choices. “;Whether it is your customers or your employees, if you want them to make the sustainable choice, you have to make it simple,”; she said.
It’s the opposite of simple for some employees. In July, a landmark lawsuit goes to trial in Sydney, Australia, with the potential to reshape the profile of $3 trillion of privately-invested Australian retirement savings. Mark McVeigh, a 24-year-old environmental scientist, is suing his $40 billion pension fund for not adequately disclosing or assessing the impact of climate change on its investments. McVeigh was frustrated that his Retail Employees Superannuation Trust (Rest) could not explain how it was future-proofing his retirement savings, and now the court will decide if the fund breached its fiduciary duties. Regardless of the outcome, the case is expected to set a cultural –; if not legal –; precedent for other activist lawsuits against private financial firms.
On the flip side, the California Public Employees’ Retirement System (CalPERS), which has around $400 billion in assets, has been criticized for depriving its members of financial security by over-investing in green companies over the past decade. The American Council for Capital Formation, free market think tank backed by oil and gas interests, said in a 2017 report that ESG investing has meant “;the fund’s performance has suffered, converting a $3 billion pension surplus to nearly $140 billion deficit over the past 10 years." CalPERS is plowing ahead, regardless, investing heavily in renewable energy and bringing together 400 funds to sign a global institutional investor statement to push the world”;s biggest companies to do better on climate change.
SUSTAINABLE FINANCE SNAPSHOTS
EU and U.S. Climate Alliance launch finance partnership: Their work will focus on climate insurance and risk assessment, financing climate-resilient measures, and infrastructure that withstands climate change.
New ESG index launched: Vigeo Eiris, an affiliate of Moody”;s, and Euronext launched a new ESG index Wednesday that will be known as the Euronext ESG80 Index. It covers the performance of 80 Eurozone “;Large Cap”; companies focused on climate action performance.
BP writing off $17.5 billion from its oil and gas assets: Lower long-term oil price projections and an expectation of a carbon price of $100-per-ton in 2030 are the reasons. It”;s winning applause from climate experts, including Rachel Kyte.
EU considering financial incentives to spur green-bond market: The euro is the dominant currency for green bond issuance, but the EU lacks a uniform set of standards for the financial instruments.
Ultra-wealthy push for green options: Nuveen”;s Annual Responsible Investing Survey of the ultra-wealthy found that 56 percent want their financial advisers to proactively help them invest sustainably, compared to just 23 percent in 2015.
Climate chair: The European Investment Bank is sponsoring a new EIB Chair on Climate Change Policy and International Carbon Markets at the European University Institute, based outside Florence, Italy.
Read more: politico.com