By Hamlin Lovell, NordicInvestor

NordicInvestor interviewed PKA’s Deputy Executive Director of ESG, and Head of Sustainable Investments (ESG), Dewi Dylander, to find out about the pension fund’s own policies, its extensive collaboration with industry groups and wider ESG oriented groups, and how its members are driving the policies.

PKA and some other Danish pension funds re-joined UN PRI in 2016 after having left it in 2013 (with two other Danish pension funds rejoining in 2019). All of PKA’s external managers are currently UNPRI signatories, though this is not a hard requirement. “Beyond UNPRI, PKA is active in several other organisations, where it is also a plus but not a requirement for managers to join”, says Dylander.

Climate Initiatives

PKA’s former CEO, Peter Damgaard Jensen, is Chair of the Institutional Investors’ Group on Climate Change (IIGCC). Dylander is participating in the IIGCC steering group for the Paris Aligned Portfolio Initiative. IIGCC has just launched a consultation on aligning portfolios with the Paris Agreement targets on temperature increases. “We have asked London-based consultancy, Vivid Economics, to test how a target carbon neutrality of net zero carbon by 2020 would affect the portfolio. The results are expected later in 2020”.

Beyond equities, Chief Portfolio Manager, Inger Huus-Pedersen is co-head of the working group on Sovereign Bonds and climate is also particularly relevant to PKA’s real estate investments.

The IIGCC Corporate Programme Advisory Group is encouraging more disclosure and accountability. It has published a report which focuses more on adapting to, than mitigating, climate risk….”

says Dylander. PKA is also involved with the CDP (Carbon Disclosure Project) and climate engagement, which we touch on below.

Harmonisation in Denmark, the Nordics and Europe

Dylander also sits on the board of Denmark’s DANSIF. DANSIF encourages some harmonization of ESG policies, through virtual and physical seminars, which share and compare ESG policies. In Scandinavia, she finds that, “ESG ambitions are high on the agenda throughout the Nordics, we have for instance had bilateral meetings with Norway’s Storebrand”. In Europe, the EU initiatives on disclosure, taxonomy, climate and green bonds are another force for harmonization. Dylander even expects “the EU could become the global standard as we do not have anything global so far”.

Collaborative engagement globally

PKA’s approach to engagement is also to pool its resources with other asset owners, on a global basis. For instance, PKA uses Federated Hermes EOS to engage with companies and managers.

Pooling investors together helps to wield more influence and get access to larger companies…”

says Dylander. Federated Hermes EOS and ISS also advise on proxy voting, based on clear policies and guidelines from PKA. They report back and publish on the website so it is all transparent. Dylander’s advisory board role at Hermes Investment Management in London (which is also affiliated with Federated Hermes) has led to engagement in relation to topics such as plastics in the sea and palm oil.

And engagement is also driving corporate improvements in the climate space. Through Climate Action 100+, PKA is engaged in active dialogues with 161 companies, which includes encouraging more carbon disclosure. PKA’s aspiration for its own carbon reporting awaits better scope 3 reporting from companies. For now, the scarcity and poor quality of scope 3 data means that many managers cannot realistically report a carbon footprint. Dylander is hopeful that EU legislation may help to improve this.

PKA does not require its external managers to actively engage.

From Exclusion to Green and Social Impact Investing

It is however essential for external managers to observe PKA’s exclusion list, which screens tobacco, controversial weapons, some oil and gas companies, and coal (above a 20% threshold) out of both long and short universes. There have been a number of divestments of companies in these industries over the past few years.

The policy has also evolved to encourage positive change. PKA’s board has prioritised 7 of the 17 UN SDGs, and may at some stage start asking managers to report on how they are contributing to the SDGs….”

Some managers have offered impact investing strategies, and PKA can invest in them if they were consistent with its investment return targets: “as a pension fund, we have a fiduciary duty in Danish law”, says Dylander.

Since May 1st PKA’s equity portfolios have had a 15% ESG tilt. Though many investors have applied ESG to equities while overlooking bonds, PKA does apply its ESG policies across asset classes and also invests heavily in green bonds. “PKA has developed its own framework for analysing green bonds, based on upcoming EU rules, to assess issues. We are also looking at social bonds and have seen an increase in them following the Corona crisis. We are eager to invest in them if the business case is good”, says Dylander. PKA has already surpassed its target of investing 10% in climate related investments, and this may increase further. PKA is also in the process of setting a target for social investments. One example of a social impact investment is PKA’s Investments in MAJ Invest’s microfinance funds in India, Africa and Latin America. Dylander also sits on the investment committee of MAJ Invest.

Other impact investments include infrastructure, water sanitation and an SDG fund backed by the Danish Government’s Investment Fund for Developing Countries. In some cases, green and social aims can be combined in the same investment.


Pulling together all of these strands is PKA’s ESG Committee, which meets monthly with PKA’s Board of Directors to discuss the strategy and ambitions on ESG tilts, exclusion lists, and so on. “This is a great opportunity to bring findings from organisations such as DANSIF and IIGCC to the table”, says Dylander.

Democracy and delegates

PKA’s ESG policies are shaped not only from the “top down” by senior management, but also from the bottom up by members. PKA’s ESG policies are partly a democratic consequence of PKA consulting its 330,000 members, who are mainly health care and social workers. “Some 900 delegates participate in seminars and feed back their views, comments, suggestions and questions to PKA. This is considered by the Board of Directors”, says Dylander. Some 90% of the pension’s members are women, which means that impact strategies such as microfinance – which mainly helps women in emerging markets – resonate strongly with them.