ESG experts from two of the largest pension funds in the Nordic region explained at a conference today why setting net greenhouse gas emissions targets does not conflict with their obligation fiduciary to aim for the best financial returns on investments.
In a discussion session at the IPE Real Assets & Infrastructure Global Investor Conference 2021 on whether investors and fund managers should set net zero targets for their portfolios, Lars Erik Mangset, chief advisor on climate change at KLP in Norway, said there were several factors behind KLP’s decision. set climate goals.
“From a more societal and market point of view, I think private sector actors are increasingly recognizing that it is also the responsibility of the private sector to contribute to the objectives of the Paris Agreement,” he said. he declared.
There was also the stakeholder perspective, he said at the virtual event.
âBut I also think that for us, as a mutual, municipality-owned pension fund, there is a clear expectation from our owners over several decades to increase our focus on responsible investment,â said Mangset.
KLP has set a longer-term goal of net carbon emissions from its investment portfolio by 2050 and seeks to align with an emissions trajectory consistent with the 1.5 degree global warming scenario. of the Paris Agreement, he said, adding that the pension fund and also has annual targets.
On how the goal setting matched KLP’s fiduciary duty, he said the owners of the institution also expected KLP not to compromise on its primary goal, which was to ensure competitive and efficient investment management.
KLP has withdrawn from coal and oil sands, and last year also significantly expanded its portfolio of renewable energy investments, he said.
“We’re not doing it in a philanthropic way – we’re doing it in a way where we can meet our climate goals while still maintaining our financial goals, and that will of course also be important for us to move forward,” says Mangset.
Jenny Gustafsson, responsible investment manager at Swedish pension fund AMF, said: âRegarding fiduciary duty, I would say that it is part of our duty to see how we can invest in this transition because it is not t is not an isolated event, it is not a trend.
âThis is a structural change, and for us it’s important that we invest in this transition in a way that benefits our customers and our owners.
Explaining the AMF’s attitude towards stakeholders regarding its net zero ambitions, Gustafsson said the pension fund has told the companies it invests in that they should set goals and live with them – and that as shareholders, it was important for the AMF to follow suit.
âI think it’s also a way to ensure that we have interests aligned with our clients and other stakeholders,â she said.
Before setting goals, it was important that entities consider how they would get there – whether through divestment, engagement, or whether they would just wait for a structural change to see what would happen. .
“And I think it’s also important to have these discussions internally at the board level to make sure you’ve thought about something, and of course how you’re going to monitor that, if it’s happening. is a complete portfolio, and what role the different assets will play. âshe said.
There was a major role for real assets to play in this regard, Gustafsson said.
In a presentation at the start of the conference session, Peter Bachmann, Managing Director, Sustainable Infrastructure, at alternative asset manager Gresham House, predicted that sustainable infrastructure would follow the same path of yield compression as seen. in infrastructure investments over the past 20 years. , and in renewable energies over the past decade.
âI am more confident than ever that we will see the same reduction in performance in sustainable infrastructure.
“This is why for us, the topic of sustainability is usually the greatest opportunity of our life,” he said.
Meanwhile, Erik Landry, a climate change specialist at real estate data company GRESB, said during the discussion that the different types of investment approach that the panelists described showed that for investors, reaching net-zero was a matter of doing everything possible at this stage.
“We don’t really see how we’re going to achieve net-zero in the long term, but it’s important to start tackling whatever we can in the short term – because some of them will come true and become the solutions that will definitely be needed over time, âhe said.
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