Why is it important to invest in the green transition?
“First of all, I believe that we, as a pension provider, have a responsibility to future generations and must contribute to creating a better planet for them. At Danica Pension, we manage pension savings in the order of DKK 500 billion, and we can make that kind of money work for a greener future. Secondly, the companies that switch to renewable energy and work with climate technologies will also be the companies of the future. They will offer the best investments, and that is why it makes sense to invest in supporting the climate agenda.”
“First of all, I believe that we, as a pension provider, have a responsibility to future generations and must contribute to creating a better planet for them.”says Poul Kobberup, Chief Investment Officer, Danica Pension.
Do these investments yield returns?
“The short answer is Yes! The climate agenda is a megatrend that helps drive growth, and returns can be gained from the companies that switch to renewables. For instance, we have more than tripled our investments in the green transition* since 2019, while delivering some of the highest returns in the industry. This shows that returns can go hand in hand with a green focus. It is all about investing in the companies that are prepared to commit to the transition and will be green frontrunners in their industry. They are essential to ensuring that society achieves the goals of the Paris Agreement and will also offer attractive investments.”
How do investments contribute to the green transition?
“We have, for example, invested in Swedish Northvolt, a company that is going to manufacture batteries for electric cars and trucks and, in that way, help support the transition of the transport sector to green energy. Our investments in green bonds are also earmarked to finance climate projects such as solar and wind energy or to reduce carbon emissions from the production of goods. We also own properties that we make more energy-efficient or build new ones that obtain sustainability certification. And not least, we engage in dialogue with the companies we invest in, actively inducing them to go green. This pressure is extremely important in our efforts to push ahead the transition and make sure that companies transform their business models into greener alternatives.”
Why do you invest so massively in green bonds?
“We have increased the green bonds to just over DKK 18 billion because we believe this is an effective way of making a direct difference. Clear frameworks and criteria ensure that funds from green bonds are used to finance climate initiatives. We are also confident that green bonds will eventually generate better returns than ordinary bonds, which means that both the pension customers and the climate will benefit from them.”
What are green bonds?
Like ordinary bonds, green bonds are a kind of loan that we, as a pension provider, grant to a company, for example. We receive interest for investing in the bond, which is the return for our pension customers. We invest in green bonds issued by companies, states or the like, and there are clear requirements and criteria specifying that the money from the bond should go to finance initiatives that have a positive impact on the environment and the climate. The company must provide documentation to prove that the money has been spent on improving its environmental or climate footprint. Money from green bonds finances solutions and products within renewable energy, environmental pollution control, clean water, waste and sewage management, energy efficiency, etc.
How do you think the green bond market is developing?
“I expect the market to grow rapidly as companies need capital to finance the transition, which is paramount to being of relevance in the future. Companies are going to drive the development in particular, but several countries are also likely to join the green wave, just as Denmark did in early 2022 with its first green bond.”
Where do the future opportunities lie in your view?
“The green transition is moving forward at a fast pace and will gather momentum in several industries. The energy sector’s switchover to renewable energy will give us exciting investment options. This also applies to the transport sector, where the green transition is going to gather pace in all modes of transport – whether cars, trucks, ships or aircraft. We generally have an eye for the opportunities arising is all sectors of Danish industry, which in many ways are forced to transform production processes and cut carbon emissions. The focus used to be on companies such as Vestas, but going forward we will be watching more closely companies such as Rockwool and Maersk, which have truly moved into the game by announcing ambitious climate plans. They are constantly setting new targets that they are able to deliver on while running a financially sound business. We see this kind of transition companies as holding a great potential in terms of climate gains and return potential.”
The international financial organisation the World Bank provides loans to the governments of low and middle-income countries in order to improve their societies and general standards of living. We have invested in green bonds from the World Bank, which finances climate and environment projects in several countries that aim to curb climate change. These projects include, for example, construction of solar and wind energy facilities, reduction of carbon emissions from public transport, better waste and water infrastructure, climate-proofing of towns and cities and energy efficiency improvements to buildings.
We have invested in green bonds from Maersk, where the money from the bonds will, for example, finance vessels sailing on green fuels, enabling Maersk to meet the goal of being carbon neutral as early as 2040. Maersk is a prime example of a company that is working strategically on its transition, has specific action plans and manages to make money on its journey towards a greener future. We have also invested in the Danish energy company Ørsted where green bonds go to finance new wind farms and other renewable energy projects.
*Our targets for investments in the green transition will, in the longer term, become aligned with the requirements and criteria of the taxonomy. In that context, we will revisit our targets as the criteria of the taxonomy are not exactly the same as those we apply to our investments in the green transition.