ABP to ditch fossil fuels as investors rule out firms with limited engagement potential

Europe's biggest public sector pension fund plans to exit fossil fuel producers over “insufficient opportunity" to accelerate energy transition

Europe's largest public sector pension fund, ABP, has announced it will divest from fossil fuel producers in the latest sign that investors are ruling out companies they feel unable to steward. 

“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,” said the Chair of the €458bn Dutch pension fund’s Board, Corien Wortmann, in a statement today.   

The pension fund giant plans to divest from most fossil fuel producers by the first quarter of 2023. This represents a total of more than €15bn in assets or almost 3% of the fund’s total assets, it said. It does not expect this decision to have a negative impact on long-term returns. 

Responding to the announcement, Liset Meddens, director of campaign group Fossielvrij NL, told RI: “This is a huge victory for the climate, human rights and all life on Earth. ABP is the largest pension fund in Europe: the importance of this step at home and abroad cannot be underestimated.” 

Until today’s announcement the campaign organisation had been considering taking legal action against the pension fund for its investment in fossil fuels. 

ABP is not the first pension fund to pledge to divest from fossil fuels. But notably, the pension fund giant is the latest to cite its frustration around engagement and its inability to “exert influence” with companies as a key reason to divest. 

This appears to be an emerging trend in the responsible investment space, with a number of major investors being increasingly open about challenges surrounding engagement. For example, Dutch pension fund PME announced last month it had sold out of all oil and gas extraction and distribution. Its Executive Board member Marcel Andringa said at the time that “after unsuccessful dialogues we already divested from a number of individual companies. Now we have sold all of our interests in fossil oil and gas companies.” It has now redesigned its engagement programme to focus on large consumers of fossil-based energy. 

And CalPERS’s Anne Simpson – a vocal promoter of engagement over divestment – appeared to criticise Exxon for being difficult to engage with at the US pension giant’s June investment committee open session

“It was actually a policy that Directors are not allowed to talk to shareholders,” she said. “They had a process whereby questions could be sent to board members through the website, but only if management chose to pass the message on. That was made quite clear. We may or may not pass your message on and you may or may not have a reply.”  

“And really that is not the kind of accountability that capitalism relies upon. It's got to be that the shareowners can hold boards accountable in order to ensure that we get the long-term performance that we need,” Simpson added.  

When RI reached out to Exxon regarding Simpson’s claim, a spokesperson for the oil and gas giant said: “Management and board members regularly engage with our shareholders on a range of topics and value their constructive perspectives. We have been encouraged by feedback on our recently announced initiatives and opportunities to improve operational performance and shareholder returns.” 

Challenges surrounding engagement do not appear to have converted Simpson to support divestment, however, as she also reiterated the importance of engagement over divestment with polluting companies in the investment committee session: “There are some investors reporting into the UN Net-Zero Asset Owner Alliance with interim targets, but they're intending to achieve them by divesting, by shedding assets. And our argument back on that is, well, just because you don't own them, doesn't mean these assets aren't still producing emissions. So we've really got to keep this focused on the real economy.” The Alliance, whose 56 members – which includes CalPERS – have pledged to transition their investment portfolios to Net Zero emissions by 2050, declined to comment.  

Despite Simpson’s argument being a common one against divestment, increasing investor frustration around slow company progress towards Net Zero could see others follow in the footsteps of ABP and PME. In a somewhat unexpected move, the UK government also weighed in on the divestment debate last week in its roadmap on green finance. As RI reported, the government said it expects pension funds and investors to “actively monitor, encourage, and challenge companies by using their rights and direct/indirect influence to promote long-term, sustainable value generation” and that “in some cases, the exercise of stewardship discipline may eventually escalate to withholding capital or divestment. For example, where a company is not taking appropriate action to transition to net zero.” 

The trend is already extending beyond climate issues, with Nordea AM announcing over the summer that it had divested South Korean steel-making company Posco. Its Head of Responsible Investments, Eric Christian Pedersen, explained to RI: “Posco has had a series of labour rights, environmental and business ethics issues around the world… and they have not been receptive to serious engagement. This makes the company an all-round ESG risk.”

Danish fund PKA said that it had added several companies to its 'observation list' over their activities in Myanmar, which was subject to a military coup in February, and would consider divesting if they “don’t comply” with engagement. 

Meanwhile, a major effort to collaboratively engage with social media giants on preventing objectionable content, led by the New Zealand Super Fund, is in the process of winding up as investors raised their “dissatisfaction that the companies [Facebook, Twitter, and Alphabet] have continued to decline our requests for a meeting with a Board member”, RI reported last week

Earlier this year, the NZSF pulled its money from five Israeli banks over their financing of Israeli settlements in the Occupied Palestinian Territories, saying its engagement with the banks was not likely to be effective given their “involvement in the face of international criticism over a long period”.