These health sector organisations have begun or completed the process of divestment or some or all fossil fuels, they have each taken different approaches which are described below.
The Berlin Doctors Pension Fund (BAV)
The Berlin Doctors Pension Fund owns over €7.3 billion in assets. The fund managers have taken sustainability into consideration since 2006, when their investment guidelines were amended to include consideration of environmental, social and governance (ESG) risks. The BAV’s sustainability manager is BMO Global Asset Management who are a large asset manager with operations around the world.
BMO created a Responsible Engagement Overlay to demonstrate commitment to management of ESG risks. This has been reinforced more recently with adoption of the UN Principles of Responsible Investment (UNPRI), and a commitment to act in the long-term interest of their members. In December 2015 the BAV adopted a sustainability directive, which covers the whole of the investment process. The BAV takes a positive approach to sustainable investing, and until recently kept the investable universe unrestricted in order to enable diversification. However, a review of sustainable investment processes led to a decision that an asset class can be sanctioned where it may have a negative impact on the pensions of the insured community.
Divestment is the final sanction, and last year CO2 intensive assets were the first, and only, asset class added to the exclusion list following the Paris climate agreement. The view is that the business model is obsolete and fossil fuel investments are losing value over the long-term given the global commitment to limit emissions in line with 2°C global warming.
BMO Global Asset Management are advising on the divestment process. All investments are in pooled funds, and so far 40 companies, that derive more than 25% of revenue from coal mining or coal fired power generation, have been divested. These 40 companies represent 1% of the total shareholdings of BAV. The divestment process is ongoing, and the asset managers are seeking to refine their filter for carbon intensive assets ahead of a further round of divestments in June 2017.
PFZW Dutch Health and Social Care Pension Fund
PFZW is the €161 billion pension fund for the Dutch healthcare industry, representing 2.5 million employees. Following the launch of a Responsible Investment Policy in 2014, in 2015 the fund sought to reduce climate risk by aiming to halve the carbon footprint of its pension holdings by 2020. Managers intend to preserve financial returns and reflect the ambitions of its pension fund holders, ‘to contribute to a world worth living in for future generations’.
Together with its fund manager PGGM, PFZW have decided to sell investments in the highest CO2 emitting businesses in the energy, utilities and materials sectors, (including power, mining and steel) which account for roughly 70% of the carbon emissions produced by PFZW’s equity portfolio.
By 2020 the fund will have almost entirely divested coal companies and will have reduced holdings in the fossil fuel industry by 30%. The fund director Peter Borgdorff says that no asset class will be fully divested, instead they will hold on to best in class companies, and some of the money released by divestment will be reinvested in out-performers in these sectors.
During this process PGGM will pursue a strategy of active engagement with high emitting companies to exert pressure on them to reduce the carbon intensity of their operations – if the companies do not reduce the carbon intensity of their businesses PFZW will divest. This process will take place over four annual steps and result in investments being withdrawn from approximately 250 companies, depending on the outcomes of engagement.
A spokesperson for PGGM said the cost of divestments and reinvestments would be minimal as they would form part of the natural flow of portfolio changes. Meanwhile the pension fund will increase its targeted investments in solutions four-fold – to 12% of the portfolio. This will include investments in solutions to water scarcity and food security, ‘two topics that are related to climate change and in which Dutch expertise can play an important role’.
The Canadian Medical Association (CMA)
The CMA is the national representative body for physicians in Canada. It has the lowest assets under management of the case studies presented with US$10m invested in long-term (35 year) investments.
The Association took the decision to divest in 2015, and completed the whole process within a year under the guidance of MSCI and Sustainalytics. In order to achieve this the CMA merged three equity funds (US, Canadian and Rest of World) into one global equity fund. A global mandate was given to the Association’s investment managers Comgest in Paris, and AGScapital in order to allow as much freedom as possible despite restrictions. The fossil free criteria restrict investments in any company whose primary business is the manufacture or transportation of fossil fuels. Additional exclusion criteria include tobacco and controversial weapons.
A further criterion is that 10% of the fund is allocated to opportunistic investments in energy efficiency technology, e.g. air conditioning solutions, Shimano bikes, LED lighting companies. The managers also created a separate divested fixed income fund. Distinctively, the CMA fund is also available to individual members to invest in as well. The Finance Director of the CMA has suggested that UK investors could also buy into the funds created.
HCF Health Insurance
HCF is an Australian health insurer with 1.5 million members, and the first to commit to divesting fossil fuels. The rationale it has given is that it cannot keep funding an industry that is endangering its members health. The fund holds AUS$1.39 billion in equities through an investment trust with investment firm JANA, and will divest 1 per cent of that, or $14 million, from fossil fuel holdings.
HCF decided to sell after a review of its international investment portfolio last year. The fund will have divested its international fossil fuel investments by March 2017, and will then seek to do the same with domestic investments.