COPENHAGEN (Reuters) - Denmark’s ATP, one of Europe’s biggest pension funds, will stop putting money in external funds that hold fossil fuel investments, a senior executive said, but will not exit oil and gas completely.
Like other global investors, ATP, with around $133 billion of assets under management, is grappling with how to address risks stemming from climate change, while maintaining returns.
A mapping of ATP’s entire portfolio showed that around half of its exposure to extraction of fossil fuels is through private equity and credit funds where ATP has little control once it has handed over the money, ATP’s environmental, social and governance chief Ole Buhl told Reuters.
He was speaking in an interview ahead of ATP’s annual results on Thursday.
Buhl said the risk of some fossil fuel assets becoming stranded amid a rapid transition to clean energy was a risk, pushing it to stop investing in private equity and credit funds which invest in fossil fuel assets.
However, ATP cannot pull out of the funds it has already invested in meaning there would be a phase-out period, he added.
ATP, Europe’s fourth-largest pension fund according to IPE, has investments in oil and gas worth roughly 5.5 billion crowns while its coal assets amount to 36 million crowns.
“We have not decided to leave the oil and gas sector yet but we see that when you invest in external illiquid funds you surrender control of the steering wheel to them,” Buhl said.
“We would like to get closer to the risk of stranded assets,” he added.
ATP, a mandatory pension scheme for around 5 million Danish workers for whom it provides an additional pension on top of the state pension, will however not take the extra step and divest from all oil and gas assets as other Scandinavian pension funds, church groups and university endowments around the world have done.
The Netherlands’ biggest pension fund, ABP, said on Monday that it aims to reduce the carbon footprint of its asset portfolio by 40% from 2015 levels by 2025.
“We think the big focus area for investors should be to make sure that it is the right oil which is being produced,” said Buhl.
Using the findings of a Stanford University study, ATP analyzed 257 oil companies’ CO2 intensity. As a result of its study, it divested from four companies producing the more carbon intensive oil sand, also known as tar sands, last year.
It will now work to engage with companies that have relatively high emissions to persuade them to change their approach, Buhl said.
Depending on the type of oil used and how it is produced, CO2 emissions from extraction, transport and refinery can vary from 15% to 40% of the oil’s total CO2 footprint, the Stanford study showed.
While ATP has a penchant for active ownership it has also included climate considerations in the algorithm it uses to pick foreign shares within high-emission industries.
Reporting by Stine Jacobsen; Editing by Susan Fenton