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August 23, 2022updated 24 Aug 2022 5:33pm

Climate Investment Coalition lures US pensions, plans EM push

The Climate Investment Coalition, a public-private initiative led by Danish pension funds, is building its network of asset owners and eyeing a bigger focus on emerging market assets. But its leaders have concerns over capital commitments in light of rising geopolitical risks.

By Vibeka Mair

Peter Damgaard Jensen of PKA says members of the Climate Investment Coalition must report on their activities to show they are keeping to their commitments. (Photo courtesy of World Climate Foundation)
  • The Denmark-led Climate Investment Coalition (CIC) has received a commitment from the New York City Comptroller as it steps up efforts to attract asset owner members, including family offices.    
  • With an eye on its $130bn allocation target, CIC will announce at Cop 27 a drive to invest in emerging markets and report on collaborations on new investments in climate technology.
  • The CIC heads are concerned about geopolitical risks, such as the fallout from the Ukraine war and China-Taiwan tensions, affecting climate investments.

The Climate Investment Coalition (CIC), a public-private initiative led by Danish pension funds, is speaking to North American pension funds and family offices, among others, with a view to further expanding its list of asset owner signatories. Such efforts are already bearing significant fruit, with the New York City Comptroller, which oversees management of the city’s public pension funds, having made a commitment to the initiative.

Yet the CIC’s co-founders and leaders are concerned that geopolitical risks related to Ukraine and Taiwan may negatively impact pledges on climate-related allocations, which the initiative says it analyses more closely than similar investor collectives do.

Nonetheless, the CIC also plans to increase its focus on emerging markets, says Peter Damgaard Jensen, outgoing chief executive of DKr400bn ($54bn) Danish pension fund PKA and co-chair of the initiative. Capital Monitor also spoke to Jens Nielsen, chief executive of CIC and founder and CEO of the World Climate Foundation.

Both men are acutely aware of the huge financing gap for climate-related assets such as renewable infrastructure, particularly in developing economies, hence their strong focus on bringing influential investors into the CIC.

The global transition to clean power has a long way to go before renewable energy capacity can meet global demand, despite substantial recent progress, according to the International Renewable Energy Agency (Irena). It reported in April that the renewable share of total generation capacity stood at 38.3% last year.

To put the world on track with the aims of the Paris Agreement, Irena estimated in 2019 that $90trn of investment would be needed in renewable energy, electrification technologies and energy efficiency between 2016 and 2050.

Accordingly, the CIC is trying to mobilise public and private money to make a collective commitment of $130bn to the renewable energy transition by 2030. So far, $55bn was pledged by Danish pension funds in 2019 and has been tracked, showing that $11bn has already been invested.

The initiative was convened in 2019 by the Danish government, trade association Insurance & Pension Denmark, the Copenhagen-based World Climate Foundation and the Institutional Investors Group on Climate Change (or IIGCC, which comprises 350 member organisations with $51trn in total assets). It also has the backing of the N8 governments of Denmark, Norway, Sweden, Finland, Iceland, the Faroe Islands, Greenland and Åland (an autonomous region of Finland).

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The CIC now has 42 asset owners officially committed, mostly from Nordic countries (click here for a partial list). Six British pension funds, including the Environment Agency Pension Fund and National Employment Savings Trust (Nest) signed up at the Cop26 summit last year.  

Courting US pensions

The CIC is also in dialogue with Canadian pension schemes and is starting to target family offices. It has also been trying to get US retirement funds on board and to that end is working with Boston-based Ceres, an investor network focused on climate risk and sustainability, Jensen says.

“There are huge sums in US pension funds,” he adds. The OECD estimated the total at $20trn at the end of 2020.

It made a breakthrough at Cop26, when the New York City Comptroller made a contribution to the Coalition’s work, with the then comptroller Scott Stringer sharing an announcement on New York public pension funds’ commitment to achieving net-zero emissions by 2040. This includes a goal to achieve a total of at least $37 billion in climate solutions investments by 2035 across three funds.

Meanwhile, the New York State Common Retirement Fund, which manages $246bn of pension assets for New York state government employees, showed an interest in 2019, Nielsen says.

It is perhaps understandable that it is slow-going obtaining pledges from US asset owners, given the polarised attitudes to climate action in America amid a wider anti-ESG political backlash.

President Joe Biden did manage to get the Inflation Reduction Act approved on 7 August, calling it “the biggest step forward on climate in our [US] history”. However, at least US 17 states have over the past year proposed or adopted state legislation that would limit the ability of pubic retirement plans to make climate-focused investments.

Geopolitical concerns

Current CIC members, meanwhile, are collaborating on new investments in energy and climate technology and solutions, which are due to be announced at Cop27 (see also chart below). Jensen says he hopes Russia’s invasion of Ukraine and related concerns over energy security will drive such developments in Europe.

But by the same token, events since Cop26 – such as the Ukraine crisis – could affect capital commitments to the CIC, Jensen said at the Climate Investment Summit, which took place on 28 June at the London Stock Exchange. “We must be sure that with rising emissions, rising energy prices and rising food prices, now more than ever climate action must remain at the centre of our discussions in the short and long term.”

Another key geopolitical issue potentially affecting the appetite for major climate investment is rising tension over Taiwan, which China claims. Beijing has responded aggressively to increasingly direct US interaction with the self-governing island, with bilateral trade talks set to take place between Taipei and Washington.

The escalating China-Taiwan tensions are difficult to assess currently, Nielsen tells Capital Monitor: “Taiwan, of course is a major growth model. If you look at Danish pension funds a lot has been invested in Taiwan.” Indeed they have already made allocations to green infrastructure in Taiwan under the CIC.

“Taiwan is one of the Asian growth models for investing in renewable energy,” Nielsen adds. “They’re also quite advanced in getting overseas pension funds to invest there. And then China is a big market. They also have a lot of green technology.”

Emerging markets push

Political tensions or not, the CIC is conscious that many emerging markets are generally receiving far less climate-related investment than they need.

At the Climate Investment Summit, Jensen said the CIC would mobilise capital commitments to developing economies and that more details would be announced at the Cop27 summit in November.

The coalition is working with the Nordic Council of Ministers – the main forum for Nordic cooperation – and engaging the institutional network across sectors and geographies to place this “important issue at the forefront”, he added.

PKA has done deals in emerging markets, such as a DKr500m ($67m) infrastructure project via the Danish Climate Investment Fund, a smaller public-private initiative that was set up in 2012. But Jensen tells Capital Monitor there are still too few investments into developing countries, with such deals very difficult to do.

Nielsen adds: “[Estimates suggest] 60-80% of [clean energy] investment in the next 30 years is going to happen in emerging markets. So pension funds are super-aware of that.”

Tracking of commitments

And asset owners that join the CIC will be aware that investment pledges made under the initiative are carefully tracked. Members must report on their activities to show they are keeping promises they make and the aim is to coordinate this disclosure and publish levels of investments annually, Jensen tells Capital Monitor.

Danish pension funds have already reported twice on their commitments, he adds, and will do so for the third time this coming autumn. They do so through Insurance & Pension Denmark and their last report was in November 2020. Jensen says other CIC members will start reporting their progress to the CIC by the start of next year.

The process is not plain sailing, as there are discussions over what is and is not green, Nielsen says. And, unlike other climate initiatives such as the UN-backed Net Zero Asset Owner Coalition, the CIC conducts a detailed analysis of progress, he adds.

“There is an actual measurement of what has been invested,” Nielsen says. “It’s very easy to put your signature on something that you’ll be net zero by 2050 and that you have X number of assets under management. But it doesn’t give any indication that you are actually doing something. If you look back into the commitment history of the past ten years of doing this, they have never been fulfilled.”

Indeed, as Capital Monitor research shows, large asset managers have on average each signed up to 24 ESG-linked initiatives but there appears to be little downside if they fail to align with the commitments they make.

“That's why the world is not changing,” Nielsen adds, and is a key reason why the CIC has been set up: “to show how you can force a change now”.

It will be interesting to see how seriously CIC signatories take their commitments to the initiative and how it responds if they do not.

Capital Monitor is hosting the Webinar series, Making Sense of Net Zero. Find out more information on NSMG.live.

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