Climate reports spurred Dutch pension fund to sell fossil fuel investments

One of Europe's largest pension funds, the Netherlands-based ABP, announced 26 October it will divest more than €15 billion (approximately $17.4 billion) of equity and debt investments in 80 oil, natural gas, and coal companies, saying international reports on the dire need to reduce CO2 emissions played a crucial role in changing its strategy.

"ABP will divest from the fossil fuel producers in phases; the majority of which is expected to be sold by the first quarter of 2023," the pension fund said in a statement.

The divestment represents about 3% of ABP's total assets of about €493 billion.

The May report of the International Energy Agency (IEA) and the August report of the Intergovernmental Panel on Climate Change (IPCC) prompted the portfolio shake-up by the pension fund, which invests on behalf of Dutch teachers and civil servants, a spokeswoman told OPIS on 26 October. "It's these reports that made us think about if we want to contribute to minimizing global warming, then more radical steps are necessary," she said.

The IEA's "Net Zero by 2050" report outlined a pathway to achieving net-zero carbon emissions by 2050 that involved the shelving of all oil and gas projects yet to be committed to as of 2021 as well as a cessation of final investment decisions for new unabated coal plants.

The near-4,000-page report from the IPCC in August suggested only deep cuts to emissions could prevent temperatures increasing by 2 degrees Celsius above pre-industrial levels. The report was described by the UN Secretary General Antonio Guterres as "a code red for humanity."

"We saw [oil, gas and coal companies] taking steps, but when we looked at the reports of the IEA and the IPCC, we [saw] that more radical steps are necessary. And then when we considered this alongside participants and employers [calling for] a change, and we [saw] that we can divest without any impact on returns. That formed the momentum for us to try to divest," the spokeswoman said.

Around €4 billion of the €15 billion to be divested is not in listed companies, the spokeswoman said. "We have to come up with a plan for those investments," the spokeswoman said.

The pension fund's investment in Shell alone has recently been worth between €400 million and €500 million, depending on movements in the company's share price, ABP told OPIS.

Change of heart

The announcement represents a dramatic volte-face for ABP, which defended the role of pension funds in changing the behavior of the world's largest carbon emitters as recently as April 2021 in its "Position Paper on the Energy Transition."

"It is important to establish whether selling fossil investments will help bring the energy transition closer," that document said. "For the time being, there is insufficient scientific evidence to support the claim that it will. If we sell our fossil investments, we give a one-off signal but then we lose our leverage. Another investor will probably buy our stake, and nothing will change at the company in question."

ABP cited an example of its work over the last few years with the Climate Action 100+ group, which it said led Shell to declare in April 2020 that it has a goal of net-zero for its Scope 1 emissions by 2050.

"We think it is better to use our influence as an investor and encourage companies to accelerate the transition to renewable energy," ABP said.

Climate Action 100+ has grown to 575 large investors that manage a combined $54 trillion in assets.

"ABP is part of the core group of [Climate Action 100+] investors that focus on 39 large oil and gas companies. This engagement yields results," said the ABP position paper.

But the tide has been shifting, and stakeholders are expecting more action. In September, activist group Fossil Free filed a lawsuit against ABP's investment policy. The lawsuit is modeled after the Friends of the Earth Netherlands' lawsuit that led to a court order in May that Shell's carbon reduction goals were inadequate. Subsequently, Shell raised its carbon emissions reductions goals, even while appealing the legal decision.

Announcing the change in strategy, ABP Board Chairman Corien Wortmann-Kool said: "We part with our investments in fossil fuel producers because we see insufficient opportunity for us as a shareholder to push for the necessary, significant acceleration of the energy transition at these companies.

"From now on we will focus on bulk users of fossil energy such as electricity companies, the car industry and aviation. Using our influence as a shareholder, ABP will encourage companies that use fossil fuels to become more sustainable," he continued.

Dutch activist investor Follow This suggested that the "risk of liability could have played a role in this abrupt decision," referencing both the Shell litigation and the newly filed action against ABP.

Original reporting by Anthony Lane, OPIS