Denmark’s capital city has just found out that the road to a carbon-neutral world is paved with good intentions.
Bicycle-loving Copenhagen, home to the European Environment Agency and some of the best organic restaurants in the world, wants to divest its fossil-intensive funds as part of a plan to become the world’s first CO2 neutral capital.
The problem is it can’t find suitably green alternatives for its 6.9 billion-krone ($1 billion) portfolio. The city’s banks -- Danske, Jyske, Nordea and Maj Invest -- have so far failed to offer what it wants, according to Frank Jensen, the Social Democrat mayor. So Copenhagen is redirecting investments currently managed by the banks to an in-house mutual fund.
“I’m sure the Danish investment community wants to provide attractive products,” Jensen said in a telephone interview. “For now, we’re just pulling our investments back. I guess eventually the banks will see there’s a demand.”
Globally, investors managing assets worth almost $4 trillion have either sold or plan to sell fossil-fuel holdings, according to the latest Bloomberg Intelligence estimate. In the Nordic region, Norway’s sovereign wealth fund, Nordea Bank AB and Danish pension fund PKA are all withdrawing from coal investments while PFA Pension has already abandoned investments in oil sands.
One reason why banks are struggling to find the right assets is that there is no agreement on what a truly fossil-fuel free investment should look like. Defining this is “a huge challenge,” said Anders Klinkby Madsen, chief executive officer of the Danish Investment Fund Association. He gives Dong as an example. The Danish utility is the world’s largest offshore wind-park operator. But it also encompasses an oil and gas unit.
“There is no global standard in this field and our approach will depend on the dialog with our customers,” says Thomas H. Kjaergaard, head of responsible investments at Danske Bank.
Copenhagen city received a 3 percent annual return on its portfolio over the past five years, along with 1.5 billion kroner in dividends since it was formed in 2007. The council must now finalize a new strategy for the portfolio, which can hold up to 36 percent in corporate bonds and equities.
Jensen wants to divest Copenhagen’s fossil fuels investments as soon as possible. Taking a loss because he’s selling into a market rout doesn’t worry him. The council is expected to finalize its new investment strategy in the spring.
“We’re racing to become the first CO2-neutral capital city in the world,” Jensen said. “It would be completely inappropriate not to sell such assets as quickly as we can.”