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Climate reports spurred Dutch pension fund to sell fossil fuel investments
27 October 2021IHS Markit Energy Expert
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.