Dominique Dijkhuis: ‘we cannot afford to wait to take action’
The head of investments at ABP says that lack of climate data will not hold back the ambitions of Europe’s largest private pension fund and calls for the introduction of carbon taxes and mandatory emissions-trading schemes.
ABP, Europe’s largest private pension fund, manages pensions for over 3 million Dutch people in the government and education sectors. In 2022, it adopted the target of reducing the C02 footprint of its entire global investment portfolio by 50% in 2030 compared to 2019.
Dominique Dijkhuis, a member of the executive board and head of investments at ABP, tells Net Zero Investor that a sustainable economy is the “guiding principle” in ABP’s sustainable and responsible investment policy. She admits that some climate data is lacking, but insists that this will not stand in the way of the fund’s ambition.
ABP also believes that companies should be responsible for the damage they inflict on the environment. As a consequence, Dijkhuis explains why carbon taxes and mandatory emissions-trading schemes are essential steps in the transition to a sustainable economy.
What are the challenges for pension funds, such as ABP, when it comes to implementing a net-zero transition plan?
Firstly, it is not always easy to quantify climate effects and give a concrete definition of what is sustainable. Pension fund investors do not yet have data on all the effects that climate has on their investment portfolios. ABP is no different, but we will not be held back by this. We cannot afford to wait to take action.
Secondly, a sustainable economy requires fair prices. The negative effects on people and the environment should be borne by the companies themselves. This stimulates innovation and ensures that costs end up where they belong. Companies that cannot survive unless they pass on these negative effects have no right to exist in a sustainable economy.
In the context of climate change, this applies particularly to greenhouse gas emissions. CO2 emissions need to be priced more. ABP cannot achieve a sustainable and liveable economy and world on its own. We need governments, companies, science and financial institutions to steer in the right direction.
What policies would you support to make C02 emissions more expensive?
We support the extension of emissions-trading schemes to make them mandatory and carbon taxes for companies, for we think that the negative effects on people and the environment should be borne by the companies themselves. Such measures will stimulate innovation and ensure that costs end up where they belong.
Can you provide more detail on ABP’s climate strategy?
We base the goals for our climate policy on the principle of a sustainable economy. We want to act in line with the Paris Agreement, which means committing ourselves to limiting the global temperature rise to below 2°C, and preferably to 1.5°. In concrete terms, this means that greenhouse gas emissions must be reduced rapidly. In order to do this, we need to reduce the footprint of our investment portfolio.
It is therefore our ambition to reduce absolute CO2 emissions, related to all ABP investments, by 50% in 2030, calculated from 2019 onwards. This is in line with what is needed, according to the IPCC report, to limit warming to 1.5°. This applies to all emissions: to direct emissions from companies (Scope 1) and the energy they use (Scope 2), but also to the emissions that companies are responsible for through the use of their products (Scope 3). And it applies to all asset classes, not just our equity portfolios.
We do not want emissions to be reduced just before 2030, but to fall linearly over time. We cannot yet measure everything, but that should not stand in the way of our ambition. We are going to work on the measurability of what we cannot yet measure. In 2050, we want no net emissions from our portfolio.
Where possible, we want to contribute to accelerating the transition from fossil to renewable energy. This is why we want to invest at least €30bn in the climate transition in 2030, at least €10bn of which should be in impact investments where we can quantify the contribution made to the transition. These are investments in climate solutions in sustainable energy, such as solar panels, wind turbines and green hydrogen, but also investments in sustainable energy infrastructure, smart networks, clean mobility and energy storage.
In addition, investments are also needed in climate adaptation. This means we invest in making social and physical structures resilient to a changing climate. For example, in infrastructure that helps prevent flooding and real estate that takes into account a changing climate and heat stress.
ABP is taking more measures to contribute to the Paris climate goals. For example, ABP will tighten the climate criteria in its inclusion policy. This means making choices: does every investment match the ideal of a sustainable economy and, therefore, fulfill ABP’s ambitions in this area?
As a shareholder we also want to raise our expectations for the companies we invest in. We make choices in our climate policy when it comes to how we deal with the companies in our portfolio; in the dialogues we have with them, and how we vote at shareholder meetings.
What are the lessons learnt from implementing a climate strategy for pension funds?
ABP invests the pension contributions of 3.1 million Dutch people. We do this to ensure a good pension in a liveable world for our participants now and in the future, at the lowest possible premium. A sustainable economy is a prerequisite for a liveable world. This is why a sustainable economy is the guiding principle in our sustainable and responsible investment policy.
As a pension fund built on the foundations of solidarity and collectivity, we occupy a central position in society. These values make us who we are. They also help define our sustainable and responsible investment policy and climate policy. In every investment decision, we not only pay attention to return, risk and costs, but also to sustainability performance.
Like other pension funds, ABP is a long-term investor. This means that we only invest in activities which fit in with the concept of a long-term sustainable economy. We make conscious choices as to what we want to invest in. We are aware that our investments have an impact on the world and that the world has an impact on our investments. We want to make a positive impact with our investments and limit negative impact and risks.
We phase out investments that do not align with a sustainable economy and accumulate investments in businesses that can and want to make the climate transition. We contribute to building future-proof and sustainable revenue models.
Stewardship practices to help companies transition as opposed to outright divestment seems to be a growing trend in the pension fund space. Do you engage in stewardship practices? If so, can you describe the things you do?
ABP recognises that the responsible use of investor rights and our role as a steward of capital entrusted to us involves the monitoring of and engagement with the companies in our portfolio as well the exercise of our voting rights at shareholder meetings. We strongly believe that effective stewardship benefits companies, investors and the economy as a whole.
That is why we engage with our investments on issues which in our view contribute to their ability to create and sustain long-term value. We believe effective engagement entails clear engagement goals, and a clear escalation path when goals aren’t met.