The Danish pension funds administer investments worth more than Euro 400 billion. The main aim of these investments is to give the pension savers the best possible rate of return. These investments help create employment and growth, but they can also enable a sustainable transition.
Public interest in sustainability has increased considerably in recent years. Danes have to a great extent adopted the sustainability agenda and do increasingly demand products that are produced in a sustainable manner. Consequently, demand for pension funds to invest in e.g. renewable energy instead of fossil fuels is also on the rise.
The Danish pension industry plays an important role facilitating a sustainable transition. Through its investments the Danish insurance and pension industry can assist the global effort to reach the UN Sustainable Develop Goals as well as the Paris Agreement on climate action. This is an essential part of what is referred to as Sustainable Finance.
Recent reporting from the pensions companies illustrates that the Danish pension funds have invested more than Euro 16 billion in green activities in 2018 and that they expect to invest more than Euro 46 billion in the green transition by 2030. These green activities are primarily defined as investments is renewable energy and green bonds.
The European Commission has introduced a number of sustainability initiatives. Concrete outcomes of these initiatives will include a unified classification system for sustainable economic activities (the taxonomy) and regulation of how pension funds’ investments are to be disclosed, thereby enabling better transparency.
Positions of IPD
The Danish insurance and pension industry has worked with sustainable investments for some years and supports the initiatives taken by the European Commission. IPD has the following concrete positions on the EU initiatives:
The taxonomy should be proportionate and flexible enough to enable pension funds to invest even more sustainable in the future. If the taxonomy becomes too rigid or black and white, there is a risk that potentially green investments will be excluded. The taxonomy should include room for transition so that companies that can provide clear plans for a sustainable development not automatically are excluded as sustainable investments.
Regulation to promote sustainable development should be driven by transparency. The Danish insurance and pension industry has a tradition for openness and transparency and most insurance companies and pension funds have disclosed policies on how they invest in a responsible way.
Solvency requirements should remain fully risk based so that the capital requirements reflect the real risk involved in an investment – not political aims.
EU initiatives have so far focused mainly on the “E” of the ESG (Environmental, Social and Governance) criteria concerning sustainable investments. IPD wishes for greater focus on the “S” and “G” as well, so that focus on social and governance can become greater in the future, e.g. through active ownership.