Danish investors, including pension funds, insurance companies, and investment funds, have significantly reduced their climate footprint in recent years. A new report from Danmarks Nationalbank reveals that these institutional investors have invested over DKK 1.3 trillion in listed companies with varying greenhouse gas emissions. Despite this, they financed emissions of only 10.9 million tonnes of greenhouse gases in 2022, representing a 20% decrease from 2018. Investors have also become less exposed to companies with high greenhouse gas emissions, measured in relation to revenue.
The report explains that the climate footprint of financial corporations primarily consists of financing non-financial corporations’ activities that result in varying degrees of greenhouse gas emissions. The climate footprint of investors is linked to investments in equities and corporate bonds, while banks’ climate footprint is mainly linked to corporate lending. The report notes that the majority of greenhouse gas emissions occur in foreign companies, as investment funds make more investments in foreign equities than in Danish equities.
Danish insurance and pension companies, including the investment funds they own, financed emissions of 6.9 million tonnes of CO2e through their investments of around DKK 800 billion in listed companies. This is higher than for investment funds, as insurance and pension companies manage larger amounts of funds invested in listed equities and corporate bonds.
The decrease in financed emissions is primarily due to both insurance and pension companies and investment funds having reduced their ownership shares in companies with high greenhouse gas emissions. Secondly, greenhouse gas emissions have stagnated or decreased in a number of companies since 2018.
Insurance and pension companies and investment funds have become less exposed to equities in emission-intensive companies since 2018. This helps reduce the risk that changes in policy and regulation in connection with the green transition may reduce the value of investments. Emission-intensive companies are characterised by having high emissions of greenhouse gases relative to their revenue, and they are thus comparatively more exposed to transition risks.
The report also introduces the analytical indicator WACI, which measures the weighted average carbon intensity of greenhouse gases for every DKK 1 million in revenue in the companies that form part of an equity portfolio. In 2022, an average of around 20 tonnes of CO2e was emitted for every DKK 1 million in revenue generated in the listed companies that formed part of the equity portfolios, representing a decrease of approximately 40% relative to 2018, when the carbon emission was 34 tonnes.