Sweden may have moved first to break fossil fuel dependency, but it’s no thanks to the pension funds
December 14, 2013
The planet’s atmosphere is constantly being flooded with more greenhouse gases. The more that we unleash, the more we warm the planet. Put simply: now is the time to let our fossil fuel reserves rest in peace.
If we are to create a sustainable future, the International Energy Agency (IEA) says that at least two-thirds of the coal, oil and gas reserves that the market believes to be economically recoverable must remain in the ground. We must instead use our resources to invest in cleaner sources of energy.
But while may feel somewhat removed from the direction of the energy markets, there are pension funds making decisions on our behalf using society’s collective assets. How much CO2 is emitted by companies that Swedish citizens are inadvertent shareholders in by virtue of these investments? Pension funds are some of the biggest actors in the country’s financial sector, so why aren’t they supporting the development of clean energy, especially in areas where Sweden is a global leader, like bioenergy?
Here’s an idea of both the scale of the problem and pension funds’ potential to change the market.
Let us first assume that our planet’s resource “budget” until 2050 is based on the agreed target of limiting the global temperature rise to 2 degrees. There are 200 companies listed on global stock market that hold 745 gigatonnes of CO2 in fossil fuel reserves, which is 180 gigatonnes more than the world’s remaining carbon budget combined, according to an analysis by the Carbon Tracker Initiative. Of these companies, there are 133 that enjoy investment from Swedish pension funds (to the tune of 32 billion SEK) and collectively hold 643 gigatonnes of CO2 – this figure itself more than 14 percent higher than the world’s remaining carbon budget, according to findings presented by environmental group WWF Sweden at a conference in November.
At the event, I interviewed the President of Carbon Tracker, Jeremy Legget, who warned that we risk a global fossil fuel bubble. “Companies and stock exchanges are currently being allowed to account coal, oil and gas reserves as assets at zero risk of standing by climate policymaking,” he told me. “As a result, such is the enormity of carbon-fuel-based value on stock exchanges that the risk of systematic financial failure builds with every new reserves of fossil fuel discovered.”
This bubble could be burst by pension funds. WWF argues that if all of such funds were to withdraw their stakes in six coal companies – Secerstal, Anglo American, BHP Billiton, Peabody, Alliance, and Xstrata – the emissions savings would equate to two times those produced by all of Sweden.
So, will pension funds in Sweden continue with an investment policy that fails to take into account the dependency on fossil fuels? Action from politicians in the pension system has the power to further strengthen the leading position that bioenergy and other non- fossil fuels have in Sweden at present.
That pension plan money finances climate change is a global theme. The US-based mass-movement 350.org calls for “divest from fossil fuels” and provokes a badly needed discussion by tweeds like this, read and spread by millions: “If you invest in fossil fuel corporations, you have a share in Typhoon Hayan: Count your profits in lives lost”.
Politics is becoming increasingly aware of the role of large investors financing climate change, so the European Union’s Climate-KIC recently promoted an initiative, where five asset owners were selected to receive a climate impact assessment for free. Maximilian Horster of South Pole Carbon, the organization running the assessment, was overwhelmed: “The interest among asset owners was enormous. We received a large amount of applications from all over Europe and it was very tough to select just five of them”.
Among the winners was also the Church of Sweden that has divested from fossil fuels already five years ago – without giving up on generating financial returns: «We hope to get our case even stronger so that we can present it better to others in the investment industry» says Gunella Hahn who runs the Responsible Investment unit and wants the Church to serve as a role model for other investors.
It is not surprising that organisations with strong ethical grounds such as churches and foundations are taking climate change and investments seriously: The pension plan of the Church of Finland has also screened its investments for climate impact in order to line up mission with investments: «This climate impact assessment of our investments will give us a new tool to continue our work» says Ira van der Pals, the Chief Investment Officer of the pension fund.
While such a climate impact assessment might be an obvious task for a church, it should also be the duty of a pension plan: For any organization with a societal mandate, it should be logic that the investments should not contradict the mission. The money managed for future retirees should be invested in a way that preserves a world that is worth retiring into. Knowing about climate impact of investments is only the first step and yet, very few large investors have taken that. The second step is then about taking action, climate-optimizing investments and divesting.
Ahead of the Swedish election in 2014, voters should look carefully at where each party stands on matters like these. Will any of them take heed of WWF’s pleas and completely phase out pension funds’ holdings in the production of oil, gas and coal?