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Oceans and Biodiversity Missing in Pension Funds’ Investment Strategies - Report

December 15, 2021

With COP26 providing a focal point for renewed attention on the importance of protecting and restoring the world’s oceans, the finance sector is coming on board with new commitments and funding.  

As large asset owners, pension funds are well placed to lead the charge on ocean-aligned finance thanks to long-term outlooks and growing demand for ESG aligned funds.

As part of the Making Oceans Count in the Nordic Financial System project, we wanted to measure the situation in Denmark, where pension funds hold assets worth more that 6 trillion DKK. In partnership with GDFA and WWF, a group of researchers from CBS set out to survey ocean investment policies and practices amongst Danish pension funds.

The analysis found that despite current trends, no Danish pension funds have publicly disclosed strategies, investment policies or practices that consider the impact or dependency of their investments on the oceans. SDG 14 and topics covered in its targets and indicators get no mention in the public reporting of these financial institutions, and troubling ocean practices such as deep sea mining do not feature on the exclusion lists.

As well as implementing ocean-specific investment policies, pension funds can improve on the current state of affairs by adopting internationally recognised standards and expanding exclusion lists to include activities that harm the oceans.

As this graphic, from Singh et al. 2018 shows, all of the SDGs are interlinked with ocean health, with significant spillover from biodiversity, nature, climate, water and waste in particular. When we zoom out to how Danish pension funds approach these wider issues, the picture looks marginally better.

Here, Danish pension funds have signalled their sustainability intent more clearly, and many are signatories or members of global initiatives such as Climate Action 100+, UN Global Compact and the Institutional Investor Group on Climate Change (IIGCC). However, sustainability is only referred to in the most part in broad terms without the required depth of detail in disclosure.

Indeed, a lack of publicly available information on the sustainability practices and investments of Danish pension funds was notable, despite what may be going on behind the scenes. Looking internationally, the Dutch pension fund APG discloses the AUM that are aligned with various SDGs, as shown below. If Danish funds were to replicate this approach, it would dramatically increase transparency and point to funding gaps.

Pension funds however, often find themselves in a difficult position in identifying the ocean impact of their investments. This is firstly due to a lack of standardised frameworks for measuring such impact, but also as our research earlier this year found, Nordic companies are poor at disclosing on the oceans.

This creates a chicken and egg scenario, where pension funds lack ocean investment policies due to lack of company disclosure, and vice versa. To break this pension funds could take a path of ocean-specific active ownership, focused first on blue economy sectors. These funds already have a good track record in driving change through strong active ownership, so this offers a high-impact pathway for pension funds to improve ocean practices amongst investee companies.

What’s next?

As we take the Making Oceans Count in the Nordic Financial System project into its second phase in 2022, we will be building upon some of the weaknesses highlighted in this research. Working together with pension funds and other financial institutions we will increase understanding of ocean impact and dependencies, and more importantly, of how FIs can actively engage and improve blue data practices. Stay tuned!

About the Authors

This summary was written by GDFA’s Nic Craig, based on research conducted by the CBS team of Annapurna Lavanya Yeleswarapu, Silvia Prandini, Lara Agneter and Nikolaj Jensen. The project was part of the Consulting for Sustainability Course at Copenhagen Business School, in partnership with GDFA and WWF.

Making Oceans Count in the Nordic Financial System

This research is part of Making Oceans Count in the Nordic Financial System, a two-year initiative, supported by VELUX FONDEN, to bring focus to how finance impacts and is dependent upon ocean ecosystems.