It seemed to herald a new era in sustainable investing: ABP, the largest pension fund in the Netherlands, announced last October that it would sell all its investments in coal, oil and gas.
This is not just a trend, it is now clear. The number two in the Dutch pension world does not go after the number one. This Wednesday, the second-largest fund, PFZW, announces a very different line. This pension fund for care and welfare is tightening its climate requirements for fossil energy companies, but wants to remain invested in these companies. Provided they show “convincing” and “verifiable” that they act in line with the Paris climate agreement. PFZW will still ban companies that fail to do so, between now and 2024.
“Impact” is the word that Joanne Kellermann, CEO of PFZW, repeats over and over in a video call with NRC† Continuing to talk with fossil fuel companies and insisting on sustainability (commitment, in investor jargon) is more effective than exiting, she believes. “We don’t want to get out of Shell, we want Shell to change, change faster,” says Kellermann. She strongly believes “in the guiding power of money.”
PFZW still has 4.5 billion euros in fossil companies. That amounts to 1.7 percent of a total invested capital of 277.5 billion. The fund also has 13.7 billion (5 percent) in renewable energy and other climate investments.
For years, PFZW has been urging fossil fuel companies to become more sustainable. Last year it voted against Shell’s transition policy in a shareholders’ meeting, supporting the resolution of the green investor group Follow This. Shares of top polluters, such as ExxonMobil, were sold.
PFZW is now putting more than 170 companies on the line: accelerate the green transition, or we’ll say goodbye to you. They all receive a letter from the pension fund from Zeist. It contains a timeline. They must immediately show that they have targets for the reduction of CO2emissions. By the end of this year, they must commit to the Paris goals (maximum 1.5 degrees of global warming). And by the end of next year at the latest, a detailed transition plan must be in place.
PFZW expects little opposition from its pension participants: “A majority considers it very important that we invest sustainably.”
Why this step?
“In recent months we have seen that the transition needs to go faster. That also applies to us. We’ve had the Glasgow Climate Conference, the International Energy Agency report [waarin staat dat zoeken naar nieuwe olie- en gasvelden direct moet stoppen] and the IPCC report [van het VN-klimaatpanel]†
Wasn’t it clear before that that emissions had to be reduced quickly?
“We didn’t wake up just yesterday. We have our CO2footprint in equities has been reduced by 53 percent since 2015, by selling stakes in the real laggards and reinvesting in the predecessors. In 2020, we said: in our entire portfolio, emissions must be reduced by another 30 percent by 2025. That won’t work if we don’t tighten up our policy. We are now going to make public in advance what we want from companies and how we are going to measure it. Until now, we have mainly practiced diplomacy. That is not fast enough.”
At the end of 2020 you said in a radio interview with BNR that PFZW would simply remain in fossil energy for the time being. That is part of the real economy, you said.
“We still do not say: we are getting out of fossil fuels. In the first place, because we won’t be off the gas tomorrow, whether you like it or not. And secondly, we think that the large companies that are traditionally involved in oil and gas are needed in the energy transition. With their size and expertise, they can make an important contribution.”
Will PFZW also stay in fossil companies because of the return? They are doing well in the stock market again.
“Of course we could be wrong, but we think that this step is the best way to secure our return in the long term. We do not want to be left with companies in our portfolio that will soon become obsolete. We are convinced that fossil energy will be phased out in the long term. That is why we invest in the frontrunners in sustainability. Besides, I want to get rid of the idea that sustainable investing would deliver worse returns. That is simply not true.”
ABP is completely abandoning fossil energy companies. Why don’t you?
“We just look at it differently. We are convinced that we will have more influence in this way than if we were to leave.”
What concrete evidence shows that an investor such as PFZW has an influence on the climate policy of companies?
“I find that difficult to point out with listed companies. You never do something like this alone. BlackRock [de grootste belegger ter wereld] also engages in ‘commitment’. Does a company then take a step because BlackRock CEO Larry Fink writes a letter, or because PFZW writes a letter? We do not know. But you do know one thing: if you step out, you will no longer be sitting at the table at all.”
What does ‘sitting at the table’ look like in practice?
“We are quite a large investor, but we are not so big that everyone immediately thinks: there you have PFZW. We work together with other large institutional investors, in international platforms such as the Climate Action 100. You divide the work among yourselves. We are talking to Shell on behalf of one of those groups. Another investor does Chevron, for example.”
Are you going to visit Shell yourself?
“No, that’s what the investment specialists of our executive organization PGGM do. They maintain such relationships.”
How much sense does it make to threaten to leave a company like Shell? Other investors are queuing up to get in – see the rising stock prices of oil companies.
“Which can. But we are not alone in this. Something is shifting. As more shareholders in Shell want to invest in renewables, that is a sign for Shell.”
Is PFZW going on an activist tour?
“We are not afraid to join activists if that helps. If necessary, we vote against an appointment or a reappointment – that is a lot clearer than we were before.”
What is the chance that you will still be in Shell in 2024?
“I do not know. I hope we’re still in it. For us it’s about getting them to pull up a leg.”
Can your companies keep their CO2offset emissions, with CO . capture2 or by planting trees?
“We don’t think that’s credible. Last year’s Shell plan relied too much on forest planting, which is why we voted against it. We test the plans against the standards of the Transition Pathway Initiativean international initiative of asset managers.”
Also read this story about the gold standard among the climate goals, ‘science based targets’: Under pressure, more and more companies are setting such goals
Can the financial world achieve enough, or should governments do more? Should the CO2– price increase for example?
Yes, the price has to go up. The markets would then estimate the true cost of CO2 reflect much better for the planet and for health. Then it will automatically become clear that companies that do not make the transition will not be profitable.”
A version of this article also appeared in NRC on the morning of February 16, 2022