With four months until COP28, partner organizations of the Mangrove Breakthrough recently met to accelerate efforts to unlock $4 billion USD in funding and secure the future of 15 million hectares of mangrove forests by 2030.
3 Race to Zero members championing Paris-aligned investments
The financial world is undergoing a remarkable transformation as more and more institutions recognize the urgent need to address the environmental crisis and take immediate action. Among those entering the race are PFZW, Avon Pension Fund and AP Pension. By aligning their investments with environmental impact, these Race to Zero members are not only contributing to a sustainable future but also ensuring the long-term viability of their businesses.
PFZW (Pensioenfonds Zorg en Welzijn), responsible for managing the pension policy and capital of nearly 3 million employees in the care and welfare sector in the Netherlands, is among those at the forefront of sustainable investing. With a portfolio valued at €277.5 billion, PFZW recognizes the urgent need to address greenhouse gas (GHG) emissions in its listed equities portfolio. To drive the transition towards a low carbon economy, PFZW has set time-bound expectations for fossil fuel companies and expanded its engagement to other significant sectors.
To tackle GHG emissions stemming from fossil fuel companies, PFZW aims to achieve a 50% reduction in tCO2e/EURmln invested, aligning with a 1.5°C pathway. By 2024, PFZW will only remain invested in fossil fuel companies that demonstrate a convincing and verifiable climate transition strategy aligned with the Paris Agreement. Intensified shareholder dialogues, assertive voting rights on climate-related resolutions, and collaboration with like-minded organizations further highlight PFZW’s commitment to driving change within the sector.
While actively addressing fossil fuel companies in the energy sector, PFZW also recognizes the importance of addressing the demand side of fossil energy. Therefore, the pension fund plans to expand its engagement program to companies in other material sectors, including energy, utilities, consumer staples, consumer discretionary, and materials. This broadened scope aims to drive sustainable practices and emissions reductions across a wider range of industries.
Avon Pension Fund
With allocations of £1.4 billion to Paris-aligned and sustainable equity strategies and over £400 million to renewable infrastructure projects, Avon is actively contributing to the transition towards a sustainable and low carbon economy.
Avon has also taken innovative steps to optimise cash investments and ensure they align with their climate objectives. Through a partnership with BlackRock, Avon leverages a suite of exchange-traded funds (ETFs) tailored to their strategic asset allocation, including a Paris-aligned ETF that closely tracks their investment in Brunel’s Paris-aligned fund. They actively monitor the ESG score and carbon intensity of their liquidity strategy, embracing environmentally aware liquidity funds that utilise positive and negative screens. Furthermore, Avon allocates a portion of fees generated to acquiring and retiring carbon offsets, promoting sustainable investing while ensuring financial performance across conventional money market fund metrics.
Recognizing the vital role of risk management in achieving their climate ambitions, Avon Pension Fund navigates the challenge of holding physical assets in the form of a passive equity fund to control leverage in their liability hedging instruments. However, they acknowledge the need for systemic change and collaborate with industry stakeholders to overcome structural and regulatory barriers. Avon pioneers the use of synthetic instruments directly referencing climate benchmarks, aiming to catalyse transformation in risk management frameworks and drive broader adoption of sustainable investment practices.
AP Pension, a Danish pension company managing a fund of USD 23 billion only invests in fossil fuel firms that are on a net zero pathway and fully aligned with the Paris Agreement. The company’s exclusion criteria is as follows:
- Coal Companies: No investments in firms deriving over 5% of their revenue from thermal coal extraction or with expansion plans.
- Utility Companies: Exclusion of companies generating more than 25% of revenue from thermal coal energy production or with expansion plans.
- Fossil Companies: Entities earning over 5% of revenue from tar/oil sands extraction are out of AP Pension’s investment portfolio.
- Oil and Gas Companies: No investments in firms with over 20% of revenue generated from upstream activities in the oil and gas sector.
AP Pension has also established an observation list for transitioning companies, recognizing that some fossil fuel firms may be progressing towards net zero emissions but have yet to fully align with the Paris Agreement.
The role of financial institutions in driving positive transformations will be discussed, and more, at the Climate Champions’ upcoming event, “The Race is On Net Zero & Nature Positive for Climate Action”, held on 26 June for London Climate Action Week.
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