Denmark’s largest occupational pension fund PFA has announced it will exclude more types of business from the investment universe available for its climate-focused pension product as Scope 3 data become available under the EU’s green reporting rules next year.
The Danish pension fund’s chief investment officer warned the change might lower returns for its PFA Klima Plus product – even though he insisted PFA still thought climate-friendly investing paid off financially in the longer term.
As well as opting out of oil, coal and gas companies, PFA said in Tuesday’s announcement that from 1 April 2025, it would also omit stocks from the climate product’s portfolio which had a strong connection to this sector.
The DKK778bn (€104bn) commercial pensions firm said: “With the changes, the return in PFA Klima Plus is expected to be slightly lower and have slightly greater short-term fluctuations than in the broad PFA Plus product, as the investments cannot be spread in the same way.”
PFA said a lot had happened since it launched the climate product back in 2020, including the EU’s creation of common rules for sustainable activities and investments, and now its requirement for companies to report on their climate footprint – referring to the Corporate Sustainability Reporting Directive, whose rules affect large businesses from 2025.
Kasper Ahrndt Lorenzen, PFA’s group CIO, said: “Improving the data basis gives us the opportunity to proceed more quantitatively and objectively when we put together the investments in the PFA Klima Plus portfolio.”
While this was the right way to go, he said PFA was also aware that with the more data-driven framework, it was also putting some more restrictions on its options for shaping the portfolio.
“Focus implies rejections and one of the consequences is that in future we will not only exclude oil, coal and gas companies, but also companies that are heavily dependent on this sector,” he said.
He said that since PFA was close to achieving the goal set for PFA Klima Plus of overall carbon-neutral equity investments in 2025, on the basis of portfolio companies’ direct emissions – Scope 1 and 2 – it was natural that ambitions were now being raised further, also taking into account the better data now available on the climate impact of companies’ entire value chains.
“In EU terms this is called Scope 3,” he said, adding: “Here we want to be 60% below the average for the world index for shares.”
The CIO added: ”We continue to have a strong belief that consideration for the climate can go hand in hand with a good long-term return for our customers, but as we step up our climate ambitions, it may affect the return a little, as we narrow our opportunities to spread the investments.”
Customers should therefore know that return expectations for PFA Klima Plus would now be slightly lower than for PFA Plus more broadly, he warned.
“We are talking about expectations, of course, because we cannot predict the future, and the return for Klima Plus could also be better than the return for PFA Plus,” he explained.
However, Ahrndt Lorenzen also said that PFA Klima Plus customers – and all savers with PFA Plus plans – would benefit from new investment profiles the provider was introducing in 2025 which had a higher proportion of equities.
This would boost potential returns, he said, meaning that a typical PFA Klima Plus customer could expect a higher return overall than today.
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