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Lessons learned from Danish pension funds

Danish pension funds are seen as worldwide frontrunners when it comes to responsible investments related to the climate crisis. However, Action Aid’s new report finds that 13 out of 16 are invested in the Dirty 30 fossil fuel expansionists.

The plans for reduction in fossil fuel exposure among Danish pension funds began years ago. Yet, Action Aid’s investigations have led to revelations of the pension sector’s lenient handling of the ambitions of fossil fuel exclusions and lower fossil fuel exposure. Last year, when the Danish Financial Supervisory Authority (FSA) asked Danish climate frontrunner AkademikerPension to assess its divestment from fossil fuel assets on an ongoing basis it was viewed as too harsh and conservative, which reveals the general sluggish behavior of the financial sector when it comes to changing the business model in favor of climate considerations. Further investigation revealed that PensionDanmark, PFA, Danica and Velliv invested in bonds issued by fossil companies that appear on the pension funds’ own exclusion list. Apparently, the liability aiming at these funds only applies to equity investments, but not to debt financing via the purchase of corporate bonds.

Until recently, several pension funds did not include bonds in their reduction plans, either because they forgot to reduce the fossil exposure in the bond portfolio. Or likely, they forgot to inform the world that their climate actions only included investments in stocks. Through stock and bonds investments, 16 Danish pension funds are involved in 93 oil and gas expansion projects in 38 countries. Our report highlights that fossil fuel expansion is neither part of the pension funds’ exclusion policies, nor active ownership policies.

The report also finds that:

  • 10 Danish pension funds are invested in TotalEnergies. TotalEnergies is identified to be responsible for fossil expansion projects in several countries: for example, exploration in Lake Albert Development and building the East African Crude Oil Pipeline (EACOP).
  • 8 Danish pension funds are invested in BP. BP is identified to be responsible for fossil expansion projects in several countries: for example, development plans for the Caspian Pipeline Consortium Expansion – a pipeline from Kazakhstan to Russia.
  • 8 Danish pension funds are invested in Equinor. Equinor is identified to be responsible for fossil expansion projects in several countries, for example, development of the Wisting Oil Field in the Barents Sea.

Investments in companies that are planning new fossil expansion are one of the most pressing issues for financial institutions to decide on. Further fossil burning from fields that have not yet been developed will cause more CO2 emissions resulting in dire consequences for the already escalating climate crisis. By 2050, the demand for coal, oil and gas must be reduced by 98, 75 and 55 percent, respectively, compared to 2021 levels, if the IEA’s net zero scenario is to be realized.

Fossil expansion is simply incompatible with a credible climate policy. We must stop the funding of fossil expansion.

Action Aid Denmark is very proud to be part of the Toxic Bonds initiative. Apart from raising general public awareness of the bond market’s role in fuelling the climate crisis, Action Aid Denmark wants to raise awareness of the topic in a Danish context where it until now has received only little scrutiny.

Investors
Written by Joachim Kattrup, Analyst at Action Aid Denmark

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