Stockholm (NordSIP) – As Danish pension giant PFA has performed a significant overhaul of its structure including its investment organisation in 2024, we reached out to Co-Chief Investment Officer (CIO) and Head of Responsible Investments & Investment Products Rasmus Bessing to find out how this transformation has affected the organisation’s ability to take sustainable investment decisions.
Firstly, PFA Pension’s commitment to sustainability is epitomised by Bessing’s dual role as head of Responsible Investments and Co-CIO. Bessing performs his role as part of a leadership team overseen by Group CIO Kasper A. Lorenzen and comprising the heads of liquid and private assets. Alongside his sustainability role Bessing also manages the design and development of the group’s investment products, which involves finding the right balance between achieving solid financial results and meeting sustainability targets.
Activism and engagement to boost the green transition
PFA’s commitment to SBTi-compliant (Science Based Targets Initiative) emissions reduction targets presents a challenge to an investor seeking to track a global universal index like the ACWI. Having joined the SBTi in early 2024, PFA is working towards full compliance by 2026 and has an overarching target for the whole portfolio to be net-zero by 2050. “Four or five years back we chose to limit our fossil sector exposure to the likes of Shell and TotalEnergies, which at that time we believed were on the right track to becoming integrated energy companies,” Bessing explains. Rather than fully divesting, PFA’s strategy has been to focus on the low-carbon transition across all sectors. He is nevertheless frustrated at the slow pace of progress, and PFA has divested from Shell in the meantime. Bessing remains pragmatic in the face of what he terms occasionally unrealistic public expectations regarding the transformation of the energy supply.
TotalEnergies remains in PFA’s portfolio on a best-in-class basis, with PFA keen to use shareholder pressure to further accelerate positive change. While avoiding exposure to traditional fossil fuel companies in the credit space, PFA is determined to maintain a focused programme of corporate engagement. Bessing is concerned that this is being jeopardised by the divestment trend: “The shareholder base of the oil majors has shifted from Europe to North America and the Middle East, where investors are typically far less focused on the green transition.” PFA is the lead investor in the Climate Action 100+ (CA100+) engagement dialogue with TotalEnergies.
According to Bessing, PFA sold its Shell holding following the company’s U-turn on prior transition commitments. In his view, TotalEnergies’ 25% capital expenditure allocation to renewables makes it a positive outlier in the sector and convincingly on-track to becoming an integrated energy company.
Bessing points out the relative futility of divestment in terms of real-world carbon reduction and believes that it is better for institutional shareholders to keep up their engagement efforts. Nevertheless, alongside its mainstream products PFA offers its clients the Klima Plus fund, which is devoid of any fossil fuel exposure and incorporates green bonds in a more full-on green transition strategy. TotalEnergies’ 80GW renewables capacity target by 2030 would put it in the global Top 5 in that respect, Bessing adds. He also believes that the French firm’s gas extraction project in the Danish North Sea helps reduce the country’s dependence on Russian gas, pointing out that energy security concerns must be considered alongside longer-term decarbonisation goals.
Facing up to the sustainability polycrisis
PFA’s approach to the fossil industry also addresses the plastics and biodiversity crises, although Bessing cautions that these are complex challenges to address. He sits on the Board of Copenhagen-based NGO the Ocean Plastic Forum, which seeks to develop waste removal and circularity projects to address the plastic pollution crisis. PFA is also signed up to the Nature Action 100 (NA100) initiative, but Bessing believes it is still early days and encouraging companies to design greater circularity into their value chains remains difficult.
The challenges faced by sustainable investors have been compounded in recent years by the so-called ‘ESG backlash.’ As an activist global investor PFA has already experienced the greater hurdles put in place in the United States (US), with limits to company dialogue and fewer opportunities to propose shareholder resolutions. While bemoaning the excessive politicisation of ESG matters in the US, Bessing also believes that the Western European and North American mindsets remain quite different and that a different pace of change is perhaps to be expected. PFA remains nonetheless convinced that addressing climate change and investing in the energy transition remain in the best interests of its clients. On the social side, Bessing underlines PFA’s belief in the genuine value of diversity within companies and stresses that they will continue to engage on the topic.
PFA has endeavoured to maintain its dialogue with investee companies where possible. Bessing points out that while some management teams are happy to keep talking others have seized the opportunity to close up shop. US tech giant Meta is a case in point, with Bessing and his team concerned about the negative societal impacts of the social media company’s algorithms. While PFA had significant shareholder support their efforts at AGMs were ultimately futile in the face of the disproportionate power of the ‘super-voting preferred’ stockholders. With PFA having joined the State of Ohio in launching a lawsuit against Meta relating to this topic back in 2022, Bessing is adamant that they will continue the fight against what he sees as the harmful effects of Meta’s platform.
Bessing believes that European investors cannot expect to always impose their domestic social and governance standards across a global investment portfolio. When quizzed on PFA’s continued ownership of Tesla when several Danish peers have publicly offloaded the stock due to CEO Musk’s resistance to workers’ unions, Bessing points out that company staff in other jurisdictions such as China also work under similar conditions. This does not mean that PFA is comfortable with the situation at Tesla and it will continue its engagement efforts on the matter, Bessing adds.
European defence companies seen in a new light
The shifting geopolitical situation has also led PFA and many of its Nordic peers to reevaluate their responsible investment policy with respect to the defence sector. Bessing makes it clear that this has been implemented on a limited basis, with hard exclusions remaining in place for cluster munitions and other controversial weapons. The changes have involved a greater tolerance level for European defence manufacturers with some limited involvement in supplying components for nuclear weapons. As a result, ten companies including the likes of BAE Systems and Thales have been reinstated. PFA clients that would still like to exclude the sector can do so via the Klima Plus fund, Bessing adds.
Having signed up to the collaborative Nature Action 100 initiative, PFA is exploring ways to incorporate biodiversity and nature metrics within its investment process. Bessing also points to concrete nature focused action that they are already taking in PFA’s real assets portfolio: “We are looking to implement more sustainable timber-based construction in our real estate projects, as well as other materials with greater circularity in mind.” PFA also seeks nature positivity via its Indian forestry investments, he adds.
As Co-CIO and Head of Responsible Investing for a near-€100 billion pension fund Bessing is steeped in the complexity of trying to navigate turbulent global markets while steering the sustainable path that PFA’s clients broadly desire. He remains cautiously optimistic about the future and convinced that progress will be made via a mix of innovation and pragmatism. “There is a lot of negative noise for the time being, but I still believe that the signals point to a greener future,” he concludes. For Bessing, while progress is slow and there remain many roadblocks, the world is undergoing a fundamental change similar in scope to the impact of digitalisation in the late 90s. There are powerful forces leading towards greater energy efficiency, which Bessing believes will be achieved with nuclear power generation alongside renewables.
