Pensioenfonds Zorg en Welzijn (PFZW), the second-largest Dutch pension fund with EUR 161 billion in assets, will be selling its positions in companies with relatively high CO2 emissions over the coming years. This way the pension fund aims to reduce the climate risks in its investment portfolio. The total CO2 footprint of the PFZW investments will be halved by 2020.
Together with its fund manager PGGM, PFZW has concluded, after in-depth study, that the pension capital should be more focused on companies that will be able to anticipate a sustainable future. This will help protect the pension capital of participants. Investments in companies with a bigger environmental impact than their competitors will underperform in the long term.
As a result of this approach, coal companies will largely be eliminated from the PFZW investment portfolio by 2020. By that year, PFZW’s assets invested in companies with stocks of fossil fuel will have been reduced by 30 percent.
In addition to preserving financial return, the fund strives to exchange a negative side effect (CO2) for a positive side effect of the investments: environmental gains. This reflects an important ambition of participants: their pension capital should contribute to a world worth living in for future generations.
Gradual departure from companies with highest CO2 emissions
The sale of the equity investments that produce the highest CO2 emissions is taking place in the Energy, Utilities and Materials sectors, where by far the greatest gains can be achieved for reducing CO2 emissions. The capital freed up will be reinvested in CO2 outperformers in these three sectors.
This will take place in four annual steps and result in investments being withdrawn from approximately 250 companies, with minimal execution costs. In addition to equities, other asset classes such as real estate will also contribute to making the portfolio more sustainable.
During this ‘phased exclusion’, fund manager PGGM will engage in intensive shareholder dialogue with businesses in these three sectors. In this process, preferably together with other long-term investors, pressure will be exerted on companies to remove fossil fuels from their business operations as much as possible.
By focusing investments on companies that are best able to adapt to a ‘decarbonised’ economy, pension capital can help support sustainable production methods and business operations. PFZW will at the same time increase its targeted ‘investments in solutions’ fourfold to 12 percent of the portfolio.
These impact investments address climate problems directly. Here again, protecting capital against the risks of climate change is an important consideration. In addition, investments are made in solutions for water scarcity and food security, two topics that are related to climate change and in which Dutch expertise can play an important role. PFZW also invests in healthcare, a natural sector in view of its membership.
Peter Borgdorff, director of PFZW: “With this approach, PFZW moves towards achieving the major ambitions we adopted in 2014 in our responsible investment policy. Aiming for financial return and sustainability will reinforce each other. Our participants also want their pension capital to contribute to a better world instead of depleting it. Together with our administrator PGGM we are taking on these important challenges."
Eloy Lindeijer, Chief Investment Management at PGGM: “The climate problem presents long-term investors with major challenges. By increasing its impact investments fourfold and halving the portfolio footprint, PFZW is raising the bar and this calls for PGGM as pension investor to develop an innovative approach to shape the move towards more sustainability.”
PGGM and PFZW welcome similar initiatives from other long-term investors. These are necessary to push businesses towards more sustainable behaviour. We are also calling on politicians to reach solid climate agreements in Paris to reduce global CO2 emissions..
PFZW is the pension fund for the 2.5 million employees and former employees in the health and social sector in the Netherlands. The PFZW board is responsible for managing EUR 161 billion in invested pension assets, for the pension scheme and good administration thereof as well as for the fund policy. PFZW has concluded a contract for pension administration with administration organisation PGGM.www.pfzw.nl
PGGM is a cooperative Dutch pension fund service provider. Institutional clients are offered: asset management, pension fund management, policy advice and management support. On 30 June 2015 PGGM had EUR 186.6 billion in assets under management. The PGGM cooperative has approximately 700,000 members and is helping them to realise a valuable future. Either alone or together with strategic partners, PGGM develops innovative future solutions by linking together pension, care, housing and work.www.pggm.nl