‘65-year-old member has more exposure than a 35-year-old’: PensionDanmark’s renewable infrastructure investment plan

PensionDanmark and Copenhagen Infrastructure Partners, a Danish pension fund and asset manager respectively, have had a long-standing alliance. The pension provider was the sole investor in CIP’s inaugural flagship fund in 2012 and is now a stakeholder in all others that followed. In total, PensionDanmark has some £4.4bn invested in CIP.

Renewable infrastructure, the assets class at the heart of that partnership, is the core of PensionDanmark’s 2030 climate investment plan. In 2021, the fund set its eyes on financing 800MW of renewable energy by the end of the decade. Much of it, through CIP.

Jan Kæraa Rasmussen, PensionDanmark’s head of ESG & sustainability told Net Zero Investor more about the 800MW target and drivers of its delivery.

Vision 2030

Target setting, the kind PensionDanmark embarked on in 2021, is often a balancing act in practice - between ambition on one hand and viability on the other.

Rasmussen says PensionDanmark’s target only counts what is financed and what is installed by 2030.

“To illustrate the interpretation of our target, say we take a 10% share in a CIP fund that finances an offshore wind farm with a 1GW capacity. We would count that as 100MW. So, we will only count what we finance”, Rasmussen says.

“This is not a target for what is under construction. It is a target for what is factually installed”, he adds.

Member interest

Rasmussen points out that the fund’s pursuit of renewable infrastructure is not only aligned with but also shaped by its fiduciary duty towards members.

“Some of our members will have accounts with us for more than half a century, so we have a long-term investment horizon. What that means is, as investors, we look for high-quality, long-term assets”, he explained.

Of all the membership factors that shape climate investing, demographics is perhaps the most quoted. Younger members, the logic goes, have most to gain from and are often more likely to support renewable infrastructure investment.

PensionDanmark holds a distinctly differing opinion. Senior members, not younger, have more skin in the renewable infrastructure game.

Rasmussen says the fund operates a life-cycle investment allocation – one that begins with savings of young members being invested in riskier assets such as public and private equity.

“As members grow old, we will gradually reduce exposure to these asset classes and one of the asset classes we substitute it with is in fact, renewable infrastructure”, Rasmussen says.

“At PensionDanmark, a 65-year-old member has a larger renewable energy exposure than a 35-year-old member”, he adds.

Risk and returns

The reasoning behind the unique approach is the fund’s reading of risk-adjusted returns from renewable infrastructure.

Rasmussen says the fund builds on its defined contribution nature and decade-long history of investing in these assets, one that provides it the ability to mitigate development risk and monitor final investment decisions.

“That is why we feel confident in giving extra exposure to our senior members”, he affirms.

When Rasmussen spoke with Net Zero Investor two years ago, he was confident returns from renewable infrastructure would be strong and stable. A view he continues to stand by.

“For renewable energy investors, I still think there is a prospect of higher returns than the bond market. Particularly if they are investing in greenfield assets. Also, if you are willing to move up the risk curve, then you will be able to harvest premiums significantly above bonds”, he outlines.

Too strong to stop

Asked about the gusty political headwinds facing renewable energy, Rasmussen is quick to point out that focusing too much on Washington ignores the wider reality.

“We should not blindfold ourselves by focusing too much on the Trump administration. If you look at the global energy market, US is not a dominant player and not as important as they are in say, the stock market”, he warns.

Of the 800MW of renewable infrastructure the fund is looking for, 559MW has already been achieved. In the years leading up to 2030, PensionDanmark will look to invest in the wider opportunity set – including batteries and storage technologies.

Try as they may, Rasmussen says, policymakers are unlikely to swing the transition pendulum back.

“The pace of the transition can be influenced by policy makers, but the wave is too strong to stop. The cost efficiency of renewable energy dominates fossil fuels. That’s the way the wind is blowing”, he quips.