Divestment ‘not main mover’ in reducing pension portfolio emissions

A study by De Nederlandsche Bank (DNB), the central bank of the Netherlands, has shown that financed emissions of Dutch pension funds have reduced, but this is more due to a decrease in emissions on the issuer side than divestment changes in the composition of the portfolio.

According to DNB, financed emissions of pension funds decreased by 36% between 2017 and 2020. Twenty-three percentage points of this could be attributed to reductions within the enterprises that had been invested, and only 13 points were divestment-related.

The statistics suggest that engagement might in fact be a better method of decarbonising a portfolio than divestment, adding to a long-running debate.

The Weighted Average Carbon Intensity (WACI) for Dutch pension funds decreased by 30% in the time period 2017-2020. The study also looked at Dutch insurers, and found that the respective decline in the industry’s WACI was 39%. The DNB analysis was focused on Scope 1 and 2 emissions and did not include Scope 3 emissions.

ECB sustainability indicators

The report stressed that the analysis was conducted primarily to provide a first version of a tool to analyse the “harmonised” sustainability indicators developed by the European Central Bank (ECB).

The indicators were published last week and have been designed to better assess the impact of climate-related risks on the financial sector. The ECB, along with central banks such as the DNB, will look to be continuously working to improve the methodology and the data used for the indicators.

Isabel Schnabel, executive board member of the ECB, said: “We need a better understanding of how climate change will affect the financial sector, and vice versa. For this, the development of high-quality data is key. The indicators are a first step to help narrow the climate data gap, which is crucial to make further progress towards a climate-neutral economy.”

Earlier this month, research by economists Luc Laeven and Alexander Popov at the ECB suggested that banks could relocate their fossil fuel portfolios in response to carbon taxes.