Strategy and focused efforts towards banks with fossil fuel business activities

Our new fossil fuel strategy, including the stricter exclusion criteria and the holistic approach, has led to a stop on investments in coal, oil and gas companies with business models that are incompatible with the goals of the Paris Agreement.

Find out more about our fossil fuel exclusion criteria

However, AP Pension continues to invest indirectly in fossil fuel companies through our investments in certain banks, which to some extent continue to provide financial services to fossil fuel companies whose business models conflict with the Paris Agreement.

Its enormous importance in society means that the banking sector plays a crucial role in the transition to a low-carbon economy. Banks can facilitate investment in low-carbon solutions and encourage the reduction of carbon emissions in the real economy through climate-conscious financing and engagement with their customers, see the objective set out in Article 2 of the Paris Agreement: “to make financial flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development”. From an investor perspective, banks that continue to finance fossil fuel activities that do not meet the objectives of the Paris Agreement will contribute to creating significant transition and physical risks as the green transition accelerates and the value of fossil fuel assets decreases (stranded assets).

We have therefore developed a method for holistically assessing whether the banks in our portfolio meet the objectives of the Paris Agreement. Based on a number of requirements for the banks’ financing activities in the fossil fuel sector, we have examined whether these are in line with the Paris Agreement’s goal of net zero emissions by 2050. The requirements are based, among other things, on recommendations from the IEA and SBTi as well as IIGCC’s and ShareAction’s individual frameworks for banks.

Our analysis shows that many major international banks in AP Pension’s portfolio are far from meeting the objectives of the Paris Agreement. We have focused our analysis and active ownership efforts in relation to the 26 banks covered by the IIGCC framework. AP Pension has 16 of these banks in its portfolio representing a total value of approximately DKK 1.4 billion (see table). This underlines the importance of focusing on active ownership efforts towards them.

llGCC banks	AP Pension’s holdings as of December 31, 2023, DKK million
Bank of America	185
Bank of Montreal	15
BNP Paribas	174
China Construction Bank	8
Citigroup	156
Groupe Crédit Agricole	1
HSBC	86
ING Bank	191
J. P. Morgan	93
Mitsubishi UFJ FG	0.3
Mizuho	7
Morgan Stanley	17
Scotiabank	13
Toronto Dominion	19
UBS	370
Wells Fargo	84
Total	Approx. DKK 1.4 billion

Active ownership efforts towards banks

AP Pension does not expect the banks to meet our requirements immediately, but expects to constantly see measures to meet the requirements over time.

AP Pension primarily exercises its active ownership of banks through our external service provider EOS. However, in cases where banks are not responsive or do not show progress, active ownership may need to be escalated. This may include the issuing of investor letters, signing investor declarations and possibly direct dialog with the relevant bank. This may also be through participation in shareholder proposals in partnership with or as support for other stakeholders. Through our involvement in the European investor initiative “IIGCC Bank Working Group”, which we joined in April 2023, we also work on active ownership towards financial institutions in general.

AP Pension also actively uses its voice when the banks in which we invest hold general meetings. More specifically, together with our external adviser, we assess shareholder proposals that require banks not to finance or invest in new fossil fuel extraction projects, or that encourage banks to present specific climate action plans that are in line with the Paris Agreement.

If active ownership efforts have proven ineffective after a long period of time and all tools have been employed, the divestment of all investments in the bank in AP Pension’s portfolio may be considered.