Sovereign wealth funds are pools of assets owned and managed by governments to achieve national objectives like balancing intergenerational wealth, funding future liabilities, facilitating fiscal stability (eg. insulating economy from commodity price changes), investing in physical and social infrastructure, and pursuing industrial strategy.
A Divest Invest approach would help meet many of these objectives, ensuring states are better prepared for the rapidly escalating energy transition.
Through these funds as well as public sector pension funds and pension reserve funds which states also control, it is estimated that governments globally control at least US$15 trillion. According to one consultancy firm, Sovereign Wealth Funds are already big investors in infrastructure, investing approximately 3.3% of their wealth in infrastructure.
Many state funds are already shifting their finances. Examples include:
- France’s ERAFP invests 24.7% of the total portfolio in socially responsible equities.
- Sweden’s AP2 invested 9.0% of the total portfolio in green investments and The Netherland’s ABP invested 6.7% of the total fund in green investments.
- The New York City Combined Retirement System (NYCRS), through the Bureau of Economic Development, targets certain investments for sustainable economic growth and development in the City of New York. In 2014, all five of New York City’s pension funds invested a combined amount of over USD 1.4 billion in economically targeted investments (ETIs) such as affordable housing and community development loans. The fund has also committed capital to rehabilitating and creating workforce housing in response to Super Storm Sandy.
- Masdar, the alternative energy company owned by Mubadala Development Co, has two funds dedicated to investing in renewable energy, including solar, hydroelectric and wind worldwide. For instance, the company owns 20% of the London Array Limited in the Thames estuary, opened up in 2013, which represents the largest operational offshore wind farm in the world
- The Norwegian Sovereign Wealth fund has divested from companies it deems unethical, including coal companies and others causing excessive environmental harm. Olso divested its $8 billion fund, Washington DC has fully divested its $6.4 billion pension fund from coal, oil and gas as has Copenhagen City of $1billion and the local government, Waltham Forest of $1billion
We believe that these actions are consistent with the Santiago Principles and aligns with nations’ pledges to the Paris Agreement.