Finance

ABP pension fund is exiting fossil fuels: what are the consequences?

1. To kick off with the (perhaps) most important question: will teachers or civil servants notice this in their retirement?

No, says the largest pension fund in the Netherlands. “This is about 3 percent of APB’s invested capital and we do not expect it to affect returns and pensions”, says Corien Wortmann, chairman of the board of ABP.

At the end of 2020, the total invested capital of ABP was 495 billion euros, of which about 15 billion euros was invested in companies such as Shell, ExxonMobil or Gazprom.

“The future will tell,” responds Jacob Schoenmaker, stock market commentator at RTL Z. The expectation that the return will not be affected is, according to him, “disputable”. “But principles may cost something. Rather a lower amount, but a healthy world,” says Schoenmaker.

Climate risks = financial risks

In the long run, the step is even good for returns, says Wortmann. The fund that arranges pensions for civil servants and teachers takes the decision because of the damage these companies cause to the climate.

“Climate risks are also financial risks, so over time we really expect this to do better for our investment portfolio,” explains Wortmann. “Oil and gas companies are simply moving way too slowly.”

Fossil not necessary for yield

from a study by the Groningen professors Bert Scholtens and Auke Plantinga from 2018, it appears that investors do not need fossil companies to achieve a good return.

The two compared investment portfolios with and without fossil companies over the period from 1927 to 2016. The conclusion: selling oil, gas or coal stocks had little effect on the return.

2. Why only now, the climate problem has been going on for years?

Simple: the pressure from society on ABP became too great. Participants and employers have been protesting against the investment policy for years, for example via Fossielvrij NL. This organization even threatened a lawsuit last summer if ABP did not change anything.

That is now on the long track, says director Liset Meddens (photo right). “We are very happy that they finally listened to us, which is a great boost.” Her organization has been trying to get ABP to take action since 2014 ‘so it could have been done a little earlier’.

The threat of the lawsuit certainly played a role, Mark van Baal thinks. For years he was diametrically opposed to ABP as the founder of Follow This, an activist shareholder trying to force oil companies to cut emissions faster.

According to ABP spokesperson Jos van Dijk, the fund was already thinking about the decision when the lawsuit was announced. The petitions, letters and actions and the urgency expressed in the IPCC’s most recent climate report were decisive for the decision, says Van Dijk.

In any case, Van Baal is surprised and happy with the news. “Shell loses one of its great defenders,” said Van Baal. He calls it a very abrupt u-turn. “One of his closest friends terminates the friendship without public warning.”

He is also critical of the pension fund, which he believes should have made this decision much earlier. But, ‘better late than later’, says Van Baal.

3. Will the decision have an effect, aren’t there enough other investors who do want a share in Shell or Gazprom, especially with the current gas prices?

They will certainly be there, expects stock market commentator Schoenmaker. “Retail investors are rubbing their hands to buy the shares because it gives a good return.”

Nevertheless, the step will have a ‘definite effect’, says Wortmann. “We as investors really have to contribute to acceleration and we are doing that with this step.”

She is supported by Van Baal and Meddens. “This is a very strong signal to the oil industry: one of the largest pension funds in the world no longer believes that the industry can contribute to achieving the goals of the Paris climate agreement,” Van Baal sums up (photo left. ) the news in one sentence.

The fact that Europe’s largest pension fund is taking action under pressure from citizens shows that you can have influence as a citizen, adds Meddens. “When it comes to the climate crisis, we often look at our individual behavior such as what you buy in the supermarket.” But it is steps such as ABP’s that are needed ‘to keep the climate goals in sight’, according to Meddens.

That increases the pressure on other investors who are still in it to explain why. Moreover, those parties are forced to exert maximum pressure on the companies to change something, explains Van Baal. “The chance that these shares will fall into the hands of climate deniers, as ABP has always said, is very small.”

4. Are other pension funds following ABP’s example?

Wortmann expects so, but little of that is apparent today. Of the big five pension funds, PME has already stopped, it announced at the beginning of September.

The pension fund for the construction sector, bpfBOUW, will soon make a decision, director David van As said. And that will go in roughly the same direction as ABP and PME. “Building has decided to monitor companies in the energy sector more critically and if they do not adhere to this, we will stop,” says Van As.

But metal fund PMT remains active as a shareholder in the sector, with invested capital of around 2.5 billion euros. The fund did sell its stake in ExxonMobil at the beginning of this year, because this company ‘insufficient progress‘ in pursuit of the Paris climate goals.

But excluding the entire sector is still going too far and that is also because a large part of the PMT supporters still need or work in this sector, spokesperson Ria van der Steen said. “We can’t turn our backs on them and say ‘just figure it out’.”

And also PFZW, the fund for healthcare personnel, continues to invest in fossil fuels, a spokesperson told Het Financieele Dagblad. The two funds use the same argument as ABP has done until now: as a shareholder they want to influence the policy of companies.

Nonsense, according to the critics Meddens and Van Baal. “If they had had such a good influence, those companies would have stopped looking for new fossil fuels long ago,” says Meddens.

5. Which companies are involved?

All the big boys from the gas and oil world are on the list that ABP publishes every quarter. A grip:

  • Russia’s Gazprom, with a book value of 65 million
  • British BP, for 100 million euros
  • The American ExxonMobil, for 446 million euros
  • Also from the US: Chevron for 411 million euros, Duke Energy (170), ConocoPhillips (166), and Marathon Petroleum (92)
  • Australia’s Woodside Petroleum, 82 million
  • Brazil’s Petrobras, 331 million
  • China Petroleum & Chemical Corp, for 87 million
  • The Spanish Repsol at 15 million
  • The Japanese coal company Tokai Carbon, 23 million
  • The Russian Lukoil for 232 million
  • Also from Russia: Novatek (124 million) Rosneft (44), Tatneft (30) and Surgutneftegas (24)
  • The French Total Energies, good for 192 million euros

And Shell is of course also among them. At the end of June 2021, ABP’s interest was worth 431 million euros. The company had to hear the departure of ABP as an investor from the media, a spokesperson said.

“We don’t think selling Shell shares will help solve this global problem,” said the frugal response. “The reality is that there is still a lot of demand from society for fossil products and we must make the transition to other forms of energy in phases.”

It is logical that Shell is not cheering, because ABP’s move could lead to a lower share price, says Jacob Schoenmaker. “Research shows that if the number of investors decreases, you will see that reflected in the price.” In addition, the company also feels this in terms of publicity. “Image is also important.”

6. And what will ABP do with the money?

The fund will look for companies that are active in the energy transition, says Wortmann. “A lot of technological development is still needed to eventually make that transition possible.”

That will be quite a complicated job, Schoenmaker expects. “There is a problem, because there is not enough room to invest sustainably for all pension funds, just look at the high valuation of Tesla.”

The pension fund does not make it any easier for itself in the search for yield. The ABP wants to follow companies from the aviation and shipping industry, the car industry, but also steel and cement manufacturers more closely. “We are going to raise the bar for the entire portfolio,” says Van Dijk.

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