When we imagine superheroes, a pension fund manager may not be the first to spring to mind. They don't wear capes. They can't fly. And they seem to spend a lot of time on Excel spreadsheets. Surreally, however, they are now the best-placed to make planet-saving decisions for both the environment and the society.

After years of significantly investing in education, research, surveys, dialogues and data, pension managers are putting down capital. With the right investments, they can act as accelerators for much-needed innovation.

Pushing back against fossil fuels
The Netherlands' largest pension funds (managing a combined EUR 900 billion) are rallying around the green energy transition like never before. In a strongly-worded letter to government, firms including ABP, PFZW, PMT, BpfBouw, and PME demanded, “ambitious and reliable government policy, more public-private financing options and a fully-fledged national investment institution".

Pension fund managers know that failing to modernise electricity grids, and continuing to invest in fossil fuels creates fatal gaps within pensions. There are the physical outside-in risks of climate change, like flooding and drought. Transition risks, for example carbon pricing and new regulations, squeezing profitability.

Climate litigation has doubled since 2017, with around 2,500 cases currently flowing through the court rooms. Famously in April this year, 2,000 Swiss women successfully brought a climate case against the government. And of course, with every litigation (increasingly brought forward on behalf of children) comes significant reputational damage.

Without addressing these environmental and social challenges, today's workers will have neither liveable homes nor functioning pensions by the time they retire.

Europe's largest pension fund, ABP recently imposed stricter minimum standards, as well as a sharpened focus around mitigating climate and biodiversity risks. Today, companies "with no realistic prospect of improvement do not fit within ABP's equity portfolio". Likewise, Dutch fund PFZW already divested 98% of its oil and gas holdings, after a two-year engagement process, amounting to over 300 fossil fuel companies. Leading institutionals want to move investment to future-proof solutions. 

Finance for climate innovation is happening

Institutional investors in the Netherlands are well aware that decarbonisation is vital for society. As the March 2024 joint letter states, "A resilient economy needs a reliable energy grid and transition to renewable energy sources".

So, how do we get there? How can we move from an established system to one that hasn't been created yet?

This is where large investors need support. They require more financing opportunities for projects in the energy transition,  structured around long-term needs of their beneficiaries. Collaborations with genuinely experienced industry players are urgently required. 

At Triodos Investment Management, we are working hard to provide these opportunities. For a few years in a row, Triodos ranked number 1 globally for financing of clean energy projects, with 140 deals and counting. But this is just the beginning.

Every investment manager must get involved, and quickly. As the joint-letter acknowledges, the green transition, "requires enormous investments, knowledge and skills”.  Speaking frankly, we have the knowledge and skills. Our longstanding investment strategy is credible and resilient, with good risk-adjusted returns. We are happy to share our 30-year learnings with other investment managers, and together we can accelerate the energy transition.

Moving forward requires many new projects and vast institutional investment. Not just in the Netherlands, but globally. To avoid exceeding 1.5 degrees, an estimated USD 32 trillion must go to robust decarbonisation projects by 2031 - 70% from private investors like pension holders. To this end, in May 2024, we partnered with Canadian labour-sponsored pension provider, Fondaction. Together, we're powering-up to drive more institutional finance into positive and profitable change.

Smaller ticket sizes for big transformations

Financing the energy transition means reconsidering how pension funds conduct business. Typically, to meet their profitability and operational requirements, managers need large ticket sizes of let’s say at least EUR 250 million. However, real innovation starts smaller. To get the ball rolling, we need to power-up innovative clean energy solutions, so that they can scale, with the institutional funds acting as accelerators.

Long-term time horizons like pensions are perfectly suited for this. Those entering the workforce today can retire in an environment of clean energy, unpolluted air, affordable homes and healthy soil...  that they themselves helped to fund. The system just works.

Like true superheroes, pension fund managers are adapting for the needs of the people and the planet. Refreshingly, we're seeing ticket sizes of EUR 50 to 100 million enter the scene to consider newer or complex investment themes where more project development is needed, for example biodiversity. 

While the ticket sizes may be smaller, pension funds also recognise that there need to be a lot more of them. To help reach the Paris goals, an estimated USD 16 trillion (half of the overall USD 32 trillion) must be invested in decarbonising electricity alone by 2030.

Sure enough, our pension managers are leading the way here too, committing finance to a wide range of social and environmental projects. Europe's largest pension fund, the ABP, for example, is investing EUR 30 billion into sustainable energy, affordable housing and climate innovation by 2030. Of this, at least EUR 10 billion must go towards local solutions, within the Netherlands.

If not us, then who?

It gives me hope to see valued professionals using their skills and influence to steer us in the right direction. After all, our choices today are what will determine the planet and society of tomorrow. We are the decision-makers, investment managers and powerholders, it's up to us to create financially healthy pensions in a liveable world. If not us, then who? If not now, then when?

It's hard to stand up and do the right thing. But our drive for a liveable, greener and fairer future is stronger. The bravery of our pension industry is stronger. We are stronger.

Sometimes in our most overwhelming moments we might not feel like superheroes. In these moments, I am often reminded of the power of the demonstration effect. There is a viral video of a man dancing on his own on a mountain top. For the first minute, he looks out of place. But little by little, others tentatively join until hundreds of people are bouncing to the music with him. Now he's remembered as something of a legend. That's what our pension managers are doing. They are getting the party started in a big way.

It seems the rest of the world could do with a little Dutch courage.