Sustainability is deeply embedded in PensionDanmark’s operations and acts as a guiding light for investment decisions and risk management to align its portfolio with its long-term ESG goals.

For its corporate bonds portfolio between 2020 and 2023 it decreased its climate footprint from 24.1 to 18.7 tonnes/1 million DKK, representing a 22.4% reduction, meaning that it has met its 2025 target ahead of schedule and is well on track to reach its 2030 target of 14.5. In addition, PensionDanmark was one of the first pension funds to receive approved targets from the Science Based Targets initiative (SBTi) for its listed equities and corporate bonds portfolio, with the aim of achieving 51% validated coverage by 2027.

A particular focus for PensionDanmark’s team in the past few years has been sustainability-linked bonds (SLBs). These are bonds that are designed to incentivise issuers to achieve specific ESG targets. A good example in practice is the fund’s commitment in 2021 in an SLB.

It is hard to change the world without getting your hands dirty. A good example is PensionDanmark’s 2021 investment in an SLB issued by a Swedish steel manufacturer where the proceeds from the bonds went towards developing zero-emission steel in an otherwise carbon-heavy industry. Another is an investment in early 2024 in the world’s first capital instrument issued by a multilateral oganisation, the African Development Bank. This concerns an SLB designated to supply capital to finance green and social projects across Africa.

PensionDanmark has sought to influence the broadening and deepening of the labelled bond markets over the years by engaging with issuers, including banks and multilateral institutions. PensionDanmark uses these opportunities to emphasise the need to broaden the climate-related bond market to more sectors and issuers to complement the green bond market that it claims is more or less exclusively dominated by utilities and financial services issuers.