COP21: Dutch pension giant ABP introduces investment carbon budget

Civil service pension fund will specify maximum CO2 levels for managers

ABP, the €357bn pension giant for Dutch civil servants, is introducing a carbon budget which will specify to asset managers the maximum quantity of CO2 that their investments as a whole are allowed to emit, its vice chair José Meijer announced today at COP21 in Paris.

ABP’s assets are managed by APG, an asset manager created in 2008 by ABP, to oversee its investments. ABP has a 92.16% stake in APG. An ABP spokesman told Responsible Investor that the fund uses other external managers through APG, who would manage adherence to its new carbon budget.

In what she called a first for the investment industry, Meijer told delegates that the carbon budget would be introduced in 2016. “Each year we will shrink the carbon budget,” she said. “Both ensuring lower carbon emissions and good returns.”

It is the latest step by ABP in moving towards a lower carbon portfolio. In October, it overhauled its responsible investment strategy, entailing an increased focus on sustainable companies, a doubling of environmentally friendly investments and a 25% cut in carbon emissions in the equity portfolio.

Meijer, who sits on the board of the Federation of the Dutch Pension Funds (Pensioenfederatie), elaborated on this commitment today, saying that by 2020 ABP will only invest in companies that operate sustainably. “Central to that are safe working conditions, respect for human rights, excluding child labour and ensuring effective governance,” she said.

She continued: “To be more specific: our overall investments in solutions double from €29bn to €58bnand we are increasing renewable energy investments from €1bn to €5bn.”
“These investments will be aimed at solutions to social and environmental problems such as water scarcity and floods, raw material shortages and water disposal.

“We will cut CO2 emissions arising from our listed equity portfolio of €100bn by 25% – a reduction of 7m tonnes of CO2 in the next five years. This is equivalent to closing three of the 11 coal-fired plants operating in the Netherlands.”

Meijer, who has herself been confronted
by beneficiaries with questions on divestment, carbon risk and its engagement with Royal Dutch Shell, criticised governments for not taking concrete action around carbon emissions. “When will governments stop subsidizing fossil fuels? When will governments attach a price to CO2 that is effective in cutting emissions?” she asked. “We need a level playing field between renewables and fossils and a stable long-term policy.”

At COP21 today, there is a special focus on the role of private finance, dubbed the Lima-Paris Action Agenda Focus on Private Finance (LPAA). So far, announcements include a set of five principles for mainstreaming climate action within financial institutions. And Credit Agricole, the French bank, has committed to structuring €60bn in new climate financing over the next three years.

And there’s been a €30m commitment from German development bank KfW to the Long term foreign exchange risk management instrument for renewable and energy efficient projects in sub-Saharan Africa created by the TCX Investment Management Company.