P+ Takes Hard Line on Oil and Gas Expansion

The Danish pension fund for academics has joined the European asset owners opting for divestment, as fossil fuel companies remain at odds with the Paris Agreement.

With more asset owners considering divestment of fossil fuel firms that are misaligned with net zero targets, the campaign group behind policy changes at some pension funds expects to close more loopholes and increase scrutiny beyond upstream producers.

Danish pension fund P+, which manages US$21 billion in assets, last week received overwhelming support at its AGM for a resolution aimed at divesting oil, gas and coal companies that plan to expand production.

It joins fellow pension funds from Denmark – AkademikerPension, AP Pension, and Lægernes Pension – in implementing stringent policies to align with the Paris Agreement’s targets to limit global warming.

According to think tank Carbon Tracker, only three of the top 25 oil and gas firms are planning for flat production volumes in the near term and only one – BP – was targeting a decline.

This is despite the International Energy Agency and the Intergovernmental Panel on Climate Change having stated that the establishment of new oil and gas projects is in direct violation of the Paris Agreement.

P+, which has more than 110,000 members, recorded a 78.2% vote in favour of a board-backed motion asking the pension fund to update its investment policy to ensure that investments in the fossil sector are compatible with the Paris Agreement by the end of the year.

Policy tightening

The pension fund for academics has already divested several companies in the coal and oil sector because they have “not shown the ability or willingness” to adapt to the green transition. Previously, the fund’s exclusion policy was focused solely on companies that generated a significant amount of their revenue from fossil fuels, such as Banco BTG Pactual, Indian Oil Corporation and Malaysia’s Petronas.

Thomas Meinert Larsen, Pension Fund Campaigner at AnsvarligFremtid, a Danish campaigning group for fossil fuel divestment, worked closely with the P+ members involved in co-filing the resolution, helping them to write the resolution in a way that raises the climate ambitions of the fund’s investment policy, as well as increase the likelihood of support by the board.

He told ESG Investor that although the P+ had previously tightened its fossil fuel investment policy, it had “significant loopholes” that allowed for investments in fossil fuel companies that were still engaged in new oil and gas production projects or new coal power plants.

“With this resolution, we wanted to make it clear that expansion with new fossil fuel projects is unacceptable, and that any companies that expand with new fossil fuel projects should be divested within a year,” he said.

Divestment trend

P+ has joined a growing number of European asset owners opting for divestment, including Church of England Pensions Board and other Danish pension funds, after trying unsuccessfully to engage with upstream fossil fuel firms.

“It seems as if most or all upstream fossil fuel companies acknowledge that the use of fossil fuels eventually will come to an end, but for some reason, this does not apply to their own company,” said Meinert Larsen. “They all argue that their company will be the ones ‘producing the last drop of oil’, and that the company’s continued expansion of new fossil projects is compatible with that notion.”

According to Global Fossil Fuel Divestment Commitments Database, the value of financial institutions divesting has reached US$40.76 trillion globally, comprised of 1615 organisations of which 11.7% are pension funds.

Meinert Larsen argued that all large asset owners, as debt holders, should immediately reject all new bonds issued by upstream companies with expansion plans. “As shareholders, they should escalate their engagement through dialogue, through AGM voting and the media, and they need to communicate very clear ‘red lines’ to the companies, including a time-bound deadline for divestment,” he said.

Smaller asset owners should rapidly phase out their exposure to upstream fossil fuel companies, he added, or at the very least remain invested only in those few upstream companies that have a “credible” Paris Agreement-aligned business plan.

Midstream and downstream

While the recent AGM resolution exclusively focuses on upstream fossil fuel companies, Meinert Larsen said P+ now needs to take a closer look at its policies on midstream and downstream oil and gas companies. However, as the green transition is likely to depend on some midstream gas/liquid infrastructure, he believes more analysis is needed on what infrastructure is required.

“But we anticipate that some tightening of policies on midstream and downstream fossil fuel companies is likely needed in the future,” he added.

Meinert Larsen also suggested that P+ and other asset owners should be engaging with policymakers to drive forward the green agenda, for example encouraging faster progress in the implementation of carbon pricing schemes.

The post P+ Takes Hard Line on Oil and Gas Expansion appeared first on ESG Investor.