A] Prelude
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https://expatpensionholland.nl/global-pillars-systems
https://expatpensionholland.nl/global-investments-risks-0
https://expatpensionholland.nl/global-social-security-coverage
B] The News
PensionDanmark, Denmark’s $51 billion pension fund, is calling on Japan and South Korea to completely wean themselves off coal-generated power by 2030. “We have decided not to finance new coal power planned after 2023 anywhere in the world,” Jan Kæraa Rasmussen, head of ESG and sustainability at PensionDanmark told.
“Our ask for utilities in developed countries, including in Japan and South Korea, is that they present comprehensive plans to phase out coal as soon as possible. And that should be closer to 2030 than 2050.” Japan use steam coal to fuel one-third of its electricity generation and metallurgical coal for raw steel production, according to the US Energy Information Administration.
South Korea also ranks among the world’s top 10 coal consumers in the world. The pension fund’s targets are less demanding for many other countries in Asia. Specifically, requirements of companies in Asia’s less developed markets differed from those made of companies in developed markets, Rasmussen said.
“In other countries, we are less restrictive. Our dialogue and demands towards companies are based on what is technically and politically possible.” “We will, of course, not expect a country to cut power supply to its own people. So, this must go hand in hand with the development of low carbon alternatives. “Asia is the world’s most populated region and it is very diverse, so we have to look at the different markets and make our ESG demands specific [to each market],” he said.
C] Dividend Pressure
Rasmussen defended the pension fund’s choice to push fossil fuel companies in Asia to pay recent windfall profits from high energy prices back to shareholders in the form of dividends, rather than re-investing them to ease their shift to more sustainable power generation. He expressed doubt about the future investment returns from the sector and the efficacy of funding these companies’ transitions over investing in alternative non-polluting energy companies.
“Regarding the distribution of large revenues in the oil and gas business, the fundamental premise must be that, if the demand for an industry’s output is expected to fall in the medium to long term, investors should be able to shift allocation away from it,” said Rasmussen. “A few oil and gas companies are about to build a promising low-carbon business but this is not the case for the majority.
“There is no natural law that predicts the leaders of the oil and gas industry will also be the leaders of low-carbon energy production in the future.” Active engagement of fossil fuel, and other, companies was a vital way to drive change in Asia, Rasmussen noted. He also emphasized the progress made by the climate friendly investor network, CA100+, of which PensionDanmark is a member.
“Active ownership depends on the asset class. We try to impact where we can do,” he noted. About 40% of the pension fund’s allocations is in public equities, where it collaborates with other like-minded investors. Its experience of working in structures like CA100+ has been good, as well as working with looser coalitions with big global companies. “These companies are taking us seriously and often we get some results,” he added.
D] Reliance Scrutiny
Rasmussen said the fund follows many of Asia’s largest oil and gas companies. He noted that Reliance Industries, the giant Indian conglomerate, whose businesses are dominated by oil and oil-to-chemicals, for instance, is a company in which the pension fund is not yet willing to invest. “Reliance has been a focus company of CA100+, since 2017, and we have noted some progress.
“The company has set targets for their scope 1 and 2 emissions by 2035, and TPI has raised the assessment of the company to a ‘middle category’. “However, we perceive that major actions are still needed for Reliance to be counted among the climate leaders in the sector,” he said.
In some cases, oil and gas companies are among the 3% to 4% of the MSCI World Index, that the fund has chosen to exclude because of their problematic ESG impacts, but only as a last resort, said Rasmussen. “They [exclusions] are definitely not what we want to do [because] we lose influence, but sometimes there is no other way,” he said. There are cases where the fund worked as part of a minority stakeholder coalition to co-ordinate ESG voting at AGMs, which would lose their vote in the event of divestment, he added.
E] Finally
Excellent to see that these large pension funds increasingly take their responsibility. Let’s hope that it will not only be EU based institutions and that they are soon followed by especially U.S. and Chinese institutions.