Pension fund moves to more sustainable investments

Activists have long campaigned for Luxembourg’s pension fund to become cleaner Photo: Shutterstock

Activists have long campaigned for Luxembourg’s pension fund to become cleaner Photo: Shutterstock

Luxembourg’s public pension fund is implementing new sustainability measures after a report found it exceeds its carbon budget to keep the increase in the Earth’s warming below 2°C. 

The Fonds de compensation (FDC) presented its first ever climate assessment on 10 December last year amid pressure from parliament and environmental groups to divest from fossil fuels.

The fund’s board in July agreed to annually measure the carbon intensity of its open-ended investment company, or Sicav, and to assess every three years whether it is aligned with the Paris Agreement target to limit global warming to 2°C above pre-industrial levels.

The December report had found that the fund currently does not meet the 2°C pathway. “In terms of apportioned emissions, these are approximately 13% higher than the emissions officially allowed for a 2°C carbon balance over the period 2012 to 2025,” it said. The carbon budget is a measure indicating the amount of CO2 the world can emit while limiting warming increases to below 2°C.

The FDC board also pledged to review sustainability criteria and increase the number of sustainable investment fund mandates as the current ones expire. In terms of passive fund management, the board decided to create a new mandate of around €500m that must be aligned with the 2°C Paris Agreement target.

But it stopped short of reviewing the criteria of its blacklist, which is regularly updated to ensure that companies not meeting international standards on human rights, the environment, labour law, the fight against corruption and weapons activities are excluded from investment.

Problematic investments

Environmental activists have long demanded that the FDC should divest from carbon majors but also stop funding nuclear power, for example through shares in EDF, which operates plants across France, including nearby Cattenom.

The fund has said that its current legal framework does not allow it to exclude entire branches of industry, such as fossil fuel companies. Members of parliament in a motion adopted last year said this should be investigated and called on the government to clean up sovereign investment.

Other problematic investments by the FDC include palm oil company Wilmar (Amnesty International in 2016 reported child and forced labour at the company’s plantations, subsidiaries and suppliers) and mining companies Newmont (criticised for excessive use of force during protests in Peru), Glencore (which displaced indigenous people for a mine in the Philippines) and Rio Tinto (among many scandals accused of poisoning rivers in Papua New Guinea), as well as defence firm Rheinmetall (accused of supplying weapons to Saudi Arabia in the Yemen conflict through a subsidiary).

The pension fund’s investment strategy is up for review in 2022 for a five-year period starting in 2023.

By the end of 2023, the FDC plans for all of its sub-funds to be managed under environmental, social and governance (ESG) criteria, social security minister Romain Schneider said in answer to a parliamentary question.

The €22.9bn portfolio has secured Luxembourg pensions for a period of four years even if there were no more contributions paid during that time.