By Hamlin Lovell, NordicInvestor

This article is part of our 2021 Nordic Insurance Report. You can find the full report here

PenSam manages approximately EUR 21 billion of pension savings for both public and private sector employees in elderly care, cleaning, technical service and pedagogical care.

CIO, Claus Jørgensen (pictured above), and Head of ESG, Mikael Bek (pictured below),  talked to us about the pension fund’s shifts into illiquids and challenges in applying growing ESG ambitions. 

The Pandemic: Remote Working, Volatility and New Manager Engagement

“We have not experienced major problems in working from home. The day-to-day business, including handling the investment portfolio ran smoothly. We did not see any delay or disruption to investment decision making. Market volatility in 2020 was not a reason for more trading because we are long term investors. I do think however that progress in the bigger development projects was slower in the period.” says Jørgensen.

A Lower for Longer World – Strategic Asset Allocation

  • Shifting from government debt to illiquid credit

“For some years, we have been reducing government bonds, due to low or negative interest rates, and have become more active in private and illiquid credit, mainly in Europe. We have also added to low risk infrastructure which is also part of the green transition to solar and wind power in Europe and the US,” says Jørgensen.

Corporate Credit Risk

The credit allocation is cautiously positioned. “Our credit portfolio is a bit defensive. We are in general worried about insufficient covenants, which means that we have increased the credit quality of the portfolio,” says Jørgensen.

Active versus Passive Management; ESG indices

“On the illiquid side, we are entirely active because it is hard to follow an index in infrastructure, real estate, private debt, and private equity,” says Jørgensen.

“In our listed strategies we are active through the selection of our benchmark. For instance, our equity benchmark is now MSCI Climate Change index. Part of the portfolio has a tracking error around 1% to seek some alpha,” says Jørgensen.

In House versus External Management

“Only Danish bonds and property are managed in house. Everything else is run externally. For infrastructure, we have joined forces with Danish pension fund PKA to form AIP. PKA started it in 2013, we joined ins 2018, and then Storebrand also joined in 2021. AIP makes it possible to invest in attractive assets supporting the green transition and with a long investment horizon,” says Jørgensen.


Climate and carbon reporting

“Our ESG priorities include climate change, where we are using the MSCI Climate risk models. This is becoming more and more integrated into our investment process. We have reported Scope 1 and 2 emissions, and will start TCFD reporting this year. We are starting to model forward-looking climate risk and Climate VAR, and have also discussed this with Blackrock. In real estate we are working with specialized companies to use dedicated tools,” says Bek.


“On EU rules, there is still much work to be done to finalize them. We expect that our own products, and our external managers, should be classified as article 8. Article 9 is much more difficult, because we think that impact investments may imply giving up some returns for the impact, and the prudent person principle does not allow us to do this. We set the same return targets for ESG and other investments and expect competitive returns,” says Bek.

(Article 8 is often described as “light green” while article 9 is often dubbed “dark green”).

Data and SDFR KPIs

“We expect to start reporting on SDFR KPIs in the first half of 2023. We think we can get the data on the listed side, but it is more difficult for private equity, private debt and infrastructure. We hope that SFDR in itself will encourage more disclosure, and that the EU Non-Financial Reporting Directive will also help. We also hope that companies outside Europe will report according to the rules. Our external managers on private debt in the US would probably report on it, and we have heard that some Chinese companies may follow EU reporting. This follows the pattern set on aggressive tax planning, where we expect managers to observe the EU tax haven list,” says Bek.

EU Taxonomy

“The EU Taxonomy is also potentially challenging. We have run calculations on our equity portfolio with Sustainalytics, and a large Nordic bank, which suggests that a small percentage of our portfolio would be taxonomy compliant – the same will likely be the case for the sector in general. Several other sources have also found, that only a small number of European companies will be able to live up to the taxonomy in its current state. One complication is that the taxonomy applies to activities not whole companies. Sometimes part of a business would be compliant with the taxonomy, but another part would not. In the German DAX index, we estimate that only a small percentage is compliant on a weighted average basis. It would therefore be very difficult to build a portfolio meeting the taxonomy, even after excluding a lot of fossil fuel and energy companies,” says Bek.


“Transition is harder now because there is so much competition for good deals that returns are coming down. Danish utility Orsted is a classic example of transition, but the window of opportunity is not there today to the same extent. Energy transition will create winners and losers, in many sectors including some where you would not expect to see them,” says Bek.

Engagement and voting

“We engage directly with Danish companies. The two recent cases have been Danske Bank and Nordea over money laundering and the dividend tax. Danish companies are generally behaving well. Most of our engagement is via Sustainalytics or CAA100+ climate action, and we use ISS on proxy voting,” says Bek.

Engagement with members

A challenge is that we need to have an opinion in a lot of areas : climate change, the environment, food in Brazil, arms export to Saudi Arabia, biodiversity, tax issues and the latest issue has been companies with exposure to Myanmar, which has just had a military coup. We have not divested yet but we are doing a review to determine if we should divest or engage. We work with Sustainalytics on screening our portfolios twice a year, but often there will be something that comes up,” says Bek.

Solvency II Framework and Regulations: More Granularity Welcome

Solvency II may be too broad brush in its categorization of investments: “the main issue for us regarding Solvency II is that it is not granular enough to capture the real economic risk of different investments. We are concerned that some specific types of investment seem to be at a disadvantage in the Solvency II regulation,” says Jørgensen.

“EIOPA advise a fair amount of changes in the 2020 review. Some of the changes are very logical eg. the change in the capital requirements for interest rates. We also think the idea of a firm specific VA is interesting,” says Jørgensen.