Denmark’s AkademikerPension will at least double its 6% allocation to climate-related assets in the next decade as it adopts a more activist approach to the environment, and Asia will be a key plank in this strategy.
The DKr135 billion ($21.83 billion) retirement fund expects to increase its exposure to the region, which is hugely dependent on coal, the most polluting fossil fuel. India generated 75% of its power from coal in 2018, while the figure for China is 67% by government figures, according to the International Energy Agency.
“There needs to be a large transition of the energy mix in Asia away from coal in order to deliver on the goals of the Paris Agreement [on Climate Change],” AkademikerPension's chief investment officer, Anders Schelde, told AsianInvestor during a telephone interview last month.*
The agreement’s central aim is to keep a global temperature rise this century well below 2 degrees Celsius above pre-industrial levels and ideally no higher than 1.5 degrees Celsius.
Hence Schelde envisages “a lot of activity” in renewables projects in Asia in the coming five to 10 years, likely leading to the fund raising its allocation to the region via unlisted assets.
AkademikerPension’s private markets exposure in Asia is minimal, at around DKr100 million. But Schelde expects that to quadruple by 2030 as it looks to invest a total of at least $600 million into climate-related assets over that time.
That fits with the institution’s goal of raising its overall illiquid investment allocation from 21.5% to 27.5% by end-2024. A good chunk of that increase will come from unlisted renewables, Schelde said.
“We want to tap into the liquidity premium of those assets to alleviate the pressure of the low-interest-rate environment,” he added. “We are already long-term investors in private equity and will remain so, but we also plan to increase our real estate and illiquid credit exposure somewhat.”
The planned global split of the climate-related portfolio is 50% in green unlisted infrastructure, mostly renewable energy; 25% in green bonds and direct lending; and 25% in green equities, defined by the European Union’s new taxonomy for environmental sustainability, released in November.
While the total allocation will likely be split roughly evenly between public and private markets, the public portion of the climate portfolio will probably eventually become larger, Schelde said. “In all likelihood, 6% is probably a conservative target on the listed side.”
It is far from alone in targeting Asia's clean energy sector, with numerous other institutional investors doing so, including pension funds like Canada's CPPIB and Ontario Teachers and Australian super funds such as Hostplus.
AkademikerPension has placed a strong focus on environmental, social and governance (ESG) issues for decades, he said, but has stepped up its efforts in the last three or four years under new management.
It hit the headlines in September for banning from its portfolio assets linked to the Chinese state because of Beijing’s human rights violations, notably in Hong Kong and Xinjiang (although some media misreported the move as the fund divesting all its holdings in China). It had already screened out government-related assets in countries such as Iran, Saudi Arabia, Thailand and 31 other countries for similar reasons.
On the environmental side, AkademikerPension decided to divest many of its listed fossil fuel-related assets globally two-and-a-half years ago. “We've been selling off investments in coal miners, oil and gas companies, tar sands producers and so on,” said Schelde.
But it has also realised that some form of engagement makes sense so it plans to hang on to some of its fossil fuel-related assets to take a more activist approach.
In 2017 the fund owned shares in seven of the 10 biggest global energy majors, such as BP, Chevron, Exxon and Shell. It has now sold most of them – around $200 million in stock – and holds just two: Italy’s Eni and Spain’s Repsol.
“So far we have only found two oil majors that we think are probably aligned sufficiently, so they are the only ones we haven't thrown out or made a final verdict on,” he said. “And we might conclude that they are okay from a Paris perspective.”
* An extended interview with Anders Schelde will appear in the forthcoming Winter 2020 edition of AsianInvestor magazine.
This article has been updated to include details of what the climate-related investment portfolio will include.