Greenpeace has long criticised that the Luxembourg pension fund, or FDC, still invests in fossil fuels and together with ASTM commissioned a study into the fund’s sustainability performance.

“The FDC lacks ambitious and consistent exclusion criteria to support political or social goals and to rule out its sustainability risks,” Nextra Consulting said in its report. The environmental consulting group previously carried out surveys for Greenpeace on the carbon footprint of .

The report slammed an exclusion list that blacklists companies from investment as “weak”. The list is updated twice a year and around 120 companies are currently blacklisted for investment--“very few” compared to the roughly 5,700 companies the FDC is invested in, Nextra said.

The consultancy’s analysis also showed that human rights violators and polluters still feature in the investment list. It cited Rosneft Oil, responsible for numerous oil spills in Russia, and Korea’s Posco International, which has faced international criticism for failing to provide safe working conditions at its plants.

During a in December 2020, opposition lawmakers pointed out other problematic investments, such as palm oil company Wilmar. Amnesty International in 2016 reported child and forced labour at Wilmar plantations and the company’s subsidiaries and suppliers.

Further investments include 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).

Carbon footprint

In addition to stricter exclusion criteria, Greenpeace and ASTM on Wednesday renewed their calls for fossil fuel divestment.

The FDC has so far argued that its current legal framework does not allow it to exclude entire branches of industry, such as fossil fuel companies. Parliament in 2020 had demanded a review of the laws governing the fund, but this has not yet happened.

The FDC published its in December 2020, concluding that it is little exposed to climate financial risks. Only 2.22% of the fund’s revenues--or 9% of its holdings--are exposed to so-called stranded assets, the report said. More than 90% of the FDC’s portfolio is at low risk of climate change disruptions, such as drought, sea level rises, heatwaves and other natural disasters.

But the fund exceeds its carbon budget to keep the increase in the Earth’s warming below 2°C. Apportioned emissions are approximately 13% higher than the emissions officially allowed for a 2°C carbon balance over the period 2012 to 2025.

“The FDC needs to develop and implement climate-related exclusion criteria,” Nextra said. “Every degree Celsius is important in combating climate change, the FDC's aggregated equity and corporate bond portfolio is on an emissions trajectory of 2.7°C” by 2050.

Strategy review

“For the FDC to be sustainable, it must adopt and implement a global, coherent, and ambitious investment strategy for the fund as a whole, as well as for asset managers and their mandated sub-funds,” Greenpeace and ASTM said in a joint statement. “All investments must be aligned with the objective of the Paris Agreement of limiting global warming to 1,5°C as well as the International Bill of Human Rights.”

The pension fund is set to review its investment strategy for a five-year period starting 2023. By the end of 2023, it plans for all of its sub-funds to be managed under environmental, social and governance (ESG) criteria.

The fund’s board in July last year 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 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.

Greenpeace had previously welcomed these efforts but . Representatives of the NGO earlier this week met with social security minister Claude Haagen and FDC officials to discuss the fund’s investment strategy.

Delano has contacted the pension fund for comment about Nextra’s findings presented on Wednesday.

Since its creation, the fund has generated around €9bn in revenue swelling the portfolio to €22.9bn and securing Luxembourg’s pensions for a period of four years even if there were no more contributions paid during that time.