KLP, Norway’s largest pension asset manager, said it plans to divest from coal companies and increase investments in renewable energy.
The divestment from coal comes even as KLP remains heavily involved in oil and gas investments. That’s because an internal study suggested that divesting from all fossil fuel companies would pose big risks for KLP and harm future returns.
From IPE Real Estate:
It said it was doing this to contribute to the “urgently needed” switch from fossil fuel to renewable energy.
KLP defines coal companies as coal mining companies and coal-fired power companies that derive a large proportion of their revenues from coal.
At the very least, KLP will exclude those with 50% of revenues from coal-based business activities.
The names of the companies to be excluded will be published in an updated KLP list on 1 December.
KLP’s divestment from coal companies also applies to the KLP funds.
The public service pensions provider said preliminary estimates showed the divestment would lead to the sale of shares and bonds worth just under NOK500m.
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The KLP Group, with total assets of NOK470bn, is already a major investor in renewable energy, with NOK19bn invested in Norway alone.
Last year, it also established a partnership with Norfund for direct investment in renewable energy and finance.
The additional NOK500m will be used for direct investments in increased renewable energy capacity in emerging economies, where KLP considers the need to be greatest.
The pension manager will not be divesting from oil and gas companies after a study suggested that doing so would diminish future returns. Details on the study from IPE Real Estate:
At present, the divestment does not apply to oil and gas companies.
KLP said this was because coal companies were considered to have the largest negative impact, both in terms of carbon emissions per unit of energy produced and local pollution in the vicinity of the coal-based facilities, even though there are significant variations between the different types of oil, gas and coal.
But KLP also said a withdrawal of investments in oil and gas companies would probably have a material impact on future returns, unlike the retreat from coal company stocks.
At the request of the Norwegian municipality of Eide, one of its customers, KLP carried out an assessment on the feasibility of pulling its investments out of oil, gas and coal companies without affecting future returns, in order to contribute to a better environment.
The report found no support for the “stranded assets” hypothesis, which posits that investments in companies with major fossil fuel reserves represent a greater financial risk than is normal for this type of undertaking.
It said: “On the contrary, a divestment from all fossil fuel companies would significantly increase KLP’s risk, particularly with respect to Norwegian shares.
“However, depending on the definition applied, divestment from coal companies alone would not represent any significant financial risk for KLP.”
KLP manages about $45 billion in pension assets.