Danish Pension Fund Divests, Citing Stranded Assets

danish pension fund divests

Managers of the 4th largest Danish pension fund have partially divested from fossil fuels, citing concerns about stranded assets. With this announcement Denmark has become the fourth Northern European government to shed significant fossil fuel investments in the past two years.

Though not as far reaching as Ireland’s decision to completely divest from fossil fuels, the decision by the Pensionskassernes Administration A/S (PKA) is nonetheless notable for basing its decision on the potential for these assets becoming stranded.  PKA manages assets on behalf of three separate pension funds with 275,000 members, and a total asset market value of €33.6 billion,

In essence, the decision was made because the investments are incompatible with what is widely believed to be a low carbon future. In the words of  the fund’s lead investor, “This is not to say the oil and gas sector will be disrupted tomorrow, but we have to accept what is happening right in front of our eyes. The energy sector is changing [at a very high] speed.”

The research firm behind the decision stated that oil and gas holdings are producing “substantially less value” for investors than in the past, a statement that is decoupled from any environmental considerations. When the latter is factored in, the balance apparently tips in favor of divestment: “investors are rightfully concerned about what the future course of investment is going to be for the companies, looking at it both from a financial and a climate angle.”

It is one thing for shareholders to accept low oil prices or even to internalize costs associated with carbon pricing; the wholesale write off of assets is another matter entirely. Indeed, it is becoming clearer that fear of massive losses due to stranded assets is precisely what is adding momentum to the divestment movement. An investor from a UK fund-house familiar with the Danish divestment had this unusually frank advice :

“Investors should look carefully, stock by stock, at the stranded-asset risk. Where there is risk with stocks, take some money off the table, maybe not divest, but take money off the table.”  

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