Luxembourg’s pension fund, the Fonds de compensation (FDC), at the end of last year updated its investment strategy for the period from 2023 to 2027, including commitments in some areas to become more sustainable and environmentally friendly.
“There are some small improvements,” said Martina Holbach, a Greenpeace campaigner during a press conference on Monday morning. “But the new investment strategy makes no direct link to the Paris climate agreement.”
Campaigners have long urged the fund to become more carbon conscious. A climate assessment in December 2020 showed that the fund exceeds its carbon budget to keep the Earth’s warming to 2°C by 13%.
“The companies that the FDC invests in, on average invest on a path of 2.7°C by 2050,” Holbach said. “Two sub-funds even on a 6°C path.” In addition, companies in the FDC’s portfolio are involved in controversial activities, such as Arctic drilling or fracking.
We really miss a commitment towards the Paris climate agreement.
The FDC’s strategy states that it must comply with international conventions and treaties ratified by Luxembourg and mentions the UN Global Compact, the UN Guiding Principles on Business and Human Rights and the OECD’s Guidelines for multinational enterprises.
Twice a year, the FDC updates a blacklist of companies barred from investment, for example for controversial weapons activities, human rights and environmental abuses or dubious business ethics.
“We don’t currently see how the FDC wants to regulate environmental and climate protection via its exclusion list,” said Holbach. “We really miss a commitment towards the Paris climate agreement and expect this point to be rectified.”
Minister yet to sign off on strategy
Members of parliament are due to debate the strategy during Thursday’s plenary assembly. The social security committee during several meetings in January had led a preliminary discussion.
Greenpeace and ASTM on Monday criticised that they had not been heard during this process. But (déi Gréng) previously told Delano that the NGOs’ positions were well known and that the committee wanted to proceed to a debate and not lose any more time.
Social security minister (LSAP) is yet to sign off on the new strategy and Greenpeace and the ASTM are urging him not to do so until the strategy has been substantially revised.
Antoniya Argivora of human rights NGO ASTM said the fund is “highly exposed” to problematic companies and shows a lack of commitment towards human rights.
The organisation welcomed the UN and OECD guiding principle being included in the strategy but said that it was unclear how the fund would ensure that these exclusion criteria are met.
It also urged the FDC to make public a “grey list” of companies under observation in addition to its blacklist.
Minimising and diversifying risk
One of the fund’s guiding principles is to diversify and minimise risk, but this does not mean that it cannot invest more sustainably, the campaigners said.
The Dutch pension fund ABP, one of the world’s biggest pension funds, in 2021 said it would divest €15bn of investments in fossil fuel producers by 2023.
Norway’s pension fund in 2019 announced it would ditch more than $13bn of investments in fossil fuels. It has since said it would push the 9,300 companies it invests in to cut their emission to net zero by 2050, prioritising dialogue with the 174 worst polluters.
Since becoming fully operational in 2007, the FDC has accumulated returns worth more than €9bn from its investments and manages a portfolio of around €26bn, enough to cover more than four years’ worth of pension payments.
But these reserves are set to dwindle over the coming years as the ratio between people taking out their pension and people still working diminishes. The reserve could shrink from 4.8 years of contributions to just 1.5, a legal minimum, between 2039 and 2043 and be fully used up between 2045 and 2048.
I think there are enough reasons to rework the strategy.
The FDC has long argued that its statutes need to be changed for it to be able to exclude entire sectors. While interpretations of the law on this point vary, Thursday’s debate should yield some result on the next steps.
Opposition party Déi Lénk already in 2020 had submitted a proposal to reform the FDC, including adding an ethics committee to its governance.
The campaigners on Monday said they had not calculated whether or how the fund could keep up its returns under stricter environmental and human rights guidelines. “I think there are enough reasons to rework the strategy,” Holbach said.
The FDC in an interview last year told Delano it would continue reforms
The National Pension Insurance Fund (CNAP) manages Luxembourg’s pensions and their payment. The FDC was created in 2004 to gain revenue from the pension system’s excess funds.
The contributions by private sector workers are divided into covering costs for pensions being currently paid out (by the CNAP) and reserves managed by the FDC. Public sector workers’ pensions are managed through a separate system.