Akademiker overhauls climate strategy introducing transition focus

Emissions reduction inside a portfolio often proceeds faster than in the world outside it. That realisation is prompting pension funds to revisit their climate investment strategies.

Thus far, funds have been willing to revisit the historical focus on reducing financed emissions with a renewed resolve to finance reduced emissions. In so doing, a few front runners have adopted transition investment targets – reshaping not only capital allocation but also manager expectations.

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The latest to join that trend is Danish pension fund AkademikerPension. CIO Anders Schelde told Net Zero Investor more about the fund’s new transition investment strategy.

Targeting transitions

AkademikerPension was an early adopter of climate investment plans. The member owned fund, with $26bn in investments, began fossil fuel divestments back in 2018. The plan was to achieve portfolio emissions reduction of 26.8% by 2025, relative to 2019 levels.

Thus far, emissions intensity of its portfolio has fallen by 51%, significantly overshooting the aim.  Now, the fund’s board of directors has opted to go further – 65% emissions reduction by 2030, with the same base. Simultaneously, the fund has unveiled an inaugural transition investment target.

AkademikerPension is now aiming to bring a minimum of 10% of its most emissions intensive assets on a Paris-aligned transition pathway by 2030, courtesy of ‘active ownership, dialogue and clear expectations for transition plans’.

“Societal decarbonisation we had expected has not materialised at the pace and scale we need”, Schelde notes, citing an emerging industry-wide view that portfolio decarbonisation does not by itself translate into real world emissions reduction.

“This is one of the key reasons we have adopted a transition target”, he says, “we are convinced that long-term, durable climate impact requires us to actively support the companies that are doing the hard work of transforming their business models, not just avoid the worst actors. Our Paris alignment cannot rest on exclusion alone”.

Returns-led

Schelde is confident that the decision is in the financial interests of AkademikerPension’s 178k members.

“We firmly believe the transition investment target is beneficial for long-term risk-adjusted returns. This is not just a values-based statement, we believe it is a financial one”, he affirms.

If the energy transition reshapes economies, his theory goes, companies that adapt will become attractive long-term investments while those that don’t will progressively lose their appeal.

“We would not be pursuing this target if we expected it to disadvantage our members' savings. On the contrary, we believe this is about securing our members' retirement savings, but also about protecting the world and the society they will retire into”, Schelde explains.

Wheat from chaff

Transition investing has a notorious credibility challenge. Separating the wheat of transition plans from the chaff is easier said than done.

Schelde says the fund scrutinises transition plans carefully.

“We look for plans that are specific, time-bound, and science-aligned, ideally validated by the Science Based Targets initiative (SBTi), of which we are long-standing supporters”, he outlines.

The fund’s list of transition plan red flags includes a reliance on offsets, lack of short-term targets and vague net zero commitments. Crucially, these expectations are being applied to external managers too.

Schelde says the fund intends to strengthen manager expectations in light of the new transition strategy.

“In March, we re-communicated our expectations to all our external manager both liquid and illiquid”, Schelde points out.

“We engage directly with managers on their stewardship practices and climate integration, and this is an area we intend to strengthen further as the transition target is implemented”, he adds.

AkademikerPension’s inaugural transition investment plan marks an evolutionary milestone in its climate investing strategy. Schelde and the team now join a small subset of fellow pension providers intentionally pursuing decarbonisation beyond the portfolio level. A guild, whose membership is widening by the day.

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