Preventable Surprises strongly welcomes this leadership action on climate risk by PFZW, the second biggest pension fund in the Netherlands.
Whilst institutional investors are divesting – which typically takes a few years– they can and should also prioritise being forceful stewards in those same companies, particularly if those companies are supporting climate denialist organisations.
The forceful stewardship guidelines are particularly relevant to fossil fuel companies that are not being targeted for divestment
And also all the other sectors which have a high carbon footprint (e.g. heavy users) or are at particular risk from global warming above 2C (e.g. insurance).
Divestment and decarbonization – both of which are good at dealing with sector specific or stranded asset risk – are not the only tools investors have. Robust engagement – aka forceful stewardship – may in fact be the best strategy for managing systemic risk. At a minimum it is at least as important a 3rd leg for investor action.
PFZW’s commitments comes close on the heels of an announcement by ABP, the largest fund in the Netherlands, that it will invest more in renewables.
Preventable Surprises understands that ABP will also be implementing what they call an “inclusion policy” where all capital market investments have to re-apply to be in the portfolio and based on ABP’s own proprietary model, they will separate all companies into those who conform with their expectations and those that don’t. The latter can only be in the portfolio if they engage and engagement leads to measurable change within reasonable time. This is the context of a commitment by ABP to reduce the carbon footprint of its equity portfolio by 25% by 2020.
This is yet more evidence for Preventable Surprises judgement that the Netherlands is well placed to set the global benchmark for investors on robust engagement. How these and other Dutch funds relate to the forceful stewardship guidelines – notably the active call for 2C transition plans – is the next big question. As is how metrics will be defined (e.g. absolute vs. relative reductions) and, most crucially from Preventable Surprises perspective, how these and other funds will evaluate whether their engagement activity is fit for purpose in terms of managing systemic risk.