To support our goals reducing financed emissions and creating impact, PGGM implements a climate active ownership program that tackles both the supply and consumption of fossil fuel-based energy. Oil and gas companies fall under the former, while companies in the Utilities,Materials and Agri-Food sectors are in the latter. Companies in these sectors are heavily reliant on fossil fuels and heavy emitters of CO2. They need to decarbonize to mitigate climate change. Switching away from fossil fuel sources and lowering their demand will also serve to incentivize oil and gas companies to seek alternative energy sources.
The ultimate goal of each program is to companies to align their strategies to align with the objective of the UN Paris Agreement of limiting global warming to well below 2 degrees Celsius, but preferably 1.5 degrees Celsius.
Each program has dedicated analysts that have the responsibility for the research, engagement, and proxy voting for the companies in their sector.
For our largest client PFZW in 2022, we started a two-year engagement program for the fossil fuel sector with the purpose of only remaining invested in companies that are meaningfully contributing to the goal of the Paris Agreement. This concluded at the end of 2023. We are now actively engaging companies in the Materials, Industrials, Utilities, and Food sectors. Read the PFZW Press Release: Only seven listed oil and gas companies retained in PFZW investment portfolio.We also aim to collaborate with other investors as much as possible by working actively through the Dutch Climate Coalition (latest statement: Dutch investor statement on oil and gas) and the Climate Action 100+ initiative.
Because the act of buying and selling secondary market securities has little impact on a company, PGGM prefers to remain invested so that we can engage and vote to encourage progress. For oil and gas companies, altough few can be considered fully Paris aligned, with the encouragement of their investors and pressure of the wider public, many have started showing progress. Engagement remains a viable strategy if a company shows a willingness and responsiveness to change. But this does not last forever.
We believe divestment is part of active ownership and represents the point in the journey when you no longer believe a company is willing or able to change. Coal companies, for example, cannot change their business model to suit the goal of the Paris Agreement and have been divested. The same philosophy is applied to oil and gas companies: those that do not become aligned with the Paris Agreement by EOY 2023 will be divested. By this point, we will have lost our confidence in their ability to change in tim and would rather spend our engagement and those that are not aligned with the Paris Agreement have been divested.
Relevance of the materials sector for economic development and climate-related impacts
The materials sector is responsible for the extraction, production and processing of the vast majority of basic materials used in everyday products we all rely on. The materials sector can be further divided into industries: chemicals (including plastics productions), metals & mining, construction and building materials, containers and paper and packaging. In our day-to-day life, any product we use containing metals, from steel to lithium, or chemicals, from plastics to food additives, has greenhouse gas emissions related to the extraction and production process attributed to it.
Collectively, we emitted more than 38 billion metrics tons of CO2-equivalent greenhouse gases in 2020, which was just 2 billion metric tons short of our peak in 2019, and best explained by the COVID19 pandemic. Emissions arising from the production of materials, the building blocks of all the products we use on a day-to-day basis, are estimated around 23% of all GHG emissions. The metal & mining industry is responsible for almost half of the industries’ emissions, 11% of all emissions, while the chemicals sector is responsible for another 5 to 6 percent of worldwide emissions.
Based on research from the UN Food and Agriculture Organization, 31 % of human-caused GHG emissions, originate from the world’s agri-food systems. Moreover, food production is heavily reliant on fossil fuels and a key driver of demand, hence its inclusion in our climate active ownership program.
PGGM is engaging with key companies in the food sector to steer them toward the development of robust, Paris-aligned climate action plans. This implies setting quantitative and time bounded targets to decarbonize operations and cease deforestation. The targets need to be supported by credible strategies that address the main sources of direct and indirect emissions.
Our preference is to engage with companies with significant market share, because their climate efforts can help accelerate a sector-wide transition to a lower carbon economy. This involves coordinated and collaborative action among a diverse set of supply chain actors. Our focus is thus on how companies address the supply-chain implementation of climate and deforestation policies, procurement practices, and suppliers’ engagement.
Under this program, we are engaging with 6 companies.
In parallel to this effort, PGGM is actively involved in the collaborative engagement “Satellite-based engagement towards no-deforestation” coordinated by Actiam.
As illustrated by the International Energy Agency (IEA), the majority of electricity that we use today still relies on fossil fuels and, as a consequence, has high historical emissions. With electricity demand predicted to grow over 166% globally by 2050, it is evident that the goals of the Paris Agreement won’t be reached without the decarbonization of this sector. Next to this, other sectors rely on electrification to reduce emissions (E.g. automotive) thus this sector is expected to be part of the solution.
PGGM is engaging with companies in the electric utilities sector to set company-wide emissions targets for annual emissions from electricity generation reaching net zero by 2035 in advanced economies and by 2040 in developing markets (as consistent with the IEA NZE scenario). These targets shall be supported by robust strategies and credible investments in low-carbon energy sources. We have established time bounded KPIs to assess the robustness of the strategies and we will exercise our voting rights and public voice as tools of escalation if the companies are not responsive to our engagement efforts.
Our theory of change is that the decarbonization of the electric utility sector can have a direct impact on energy producers by facilitating the development and mainstreaming of low-carbon energy sources. Moreover, a lack of progress in this transition might hinder the progress of other sectors where electrification plays a big role in reducing emissions. Therefore, the choices and commitments electricity generation companies – and policymakers that set the sector’s regulation – make now, impact the success of the energy transition overall as well as the low-carbon transitions in other sectors.
Under this program, we are engaging with 7 companies.
PFZW press release: The first phase of the fossil energy programme of PFZW announced in February 2022 has been completed.Shares in 114 companies in this sector have been sold, and discussions with a select group of companies about their climate ambitions have been intensified.
October 20th, 2022, The Netherlands – Earlier this year, we, a group of like-minded Dutch investors, published a statement outlining the objectives that oil and gas companies should pursue to be aligned with the goals of the Paris Agreement.
Joint statement of institutional investors with combined AuM of EUR 1.48 trillion
‘PFZW urges a rapid transition of the fossil fuel sector, without which we will not meet the climate targets,’ said Joanne Kellermann, Chair of PFZW.
