Copenhagen’s $1.8 Billion Money Pot Is Looking for Green Targets

(Bloomberg) -- After adopting a greener focus for its $1.8 billion investment portfolio a few years ago, the City of Copenhagen is now stepping up its search for sustainable assets.

Copenhagen Lord Mayor Frank Jensen says he has “a clear expectation that the global green transition in the future will present even better green investment opportunities, and we should of course use them.”

In 2016, the City of Copenhagen changed its investment strategy to exclude companies that get more than 5% of their revenue from fossil fuels. Companies involved in the production of tobacco and weapons are also shunned. Since then, Copenhagen’s investment fund has generated 517 million kroner ($76 million) in returns. Over the lifetime of the fund, the average three-year return has been 500 million kroner.

This week, mayors from around the world gathered in the Danish capital for the annual C40 summit to address climate change. Much of the focus of the talks was on the way of life in Copenhagen, where 40% of the population bikes to work or school every day. The Danish capital has also set itself a goal of being the first city in the world to be net carbon-neutral, which local politicians expect to happen as early as 2025.

Eric Garcetti, the mayor of Los Angeles, says Copenhagen’s investment strategy is one for other cities to follow. He also says he’s already taking steps to try to do so, and will be in a position to push the agenda, as he takes over the rotating chairmanship of C40.

“I have already had conversations with sovereign wealth funds to bring together all those financiers and say: Can we adopt these as standards instead of doing one at a time?” Garcetti said in an interview. “Maybe we can develop a standard of which we can judge whether we are being sustainable.”

Copenhagen’s investment fund is built on surplus revenue from the city’s taxpayers. The goal of targeting greener assets means the city is likely to need to move further into alternative investments, which tend to come with a higher risk. In a recent interview, the head of Denmark’s financial regulator warned pension funds against ignoring their obligation to retirees to generate the highest possible returns, if they’re planning on targeting more ethical investments.

The City of Copenhagen still holds a lot of more conventional assets, including stakes in some of the world’s biggest equities. Its 20 million-krone position in Microsoft Corp. has gone up about 36% this year alone. In the 12 years the fund has existed, its built up stakes in government bonds, mortgage bonds and equities in an effort to boost its budget. Over that period, its generated an extra 2 billion kroner.

“Of course we have to protect taxpayer’s money so we have to spread our investments,” Jensen, the Copenhagen mayor, said in an email to Bloomberg.

It’s worth noting that there’s currently no global standard for what constitutes a green investment, though the City of Copenhagen has its own definition. Per Hansen, an investment economist at Nordnet, describes the city’s portfolios as “standard+”, which means the investments made are just slightly above average in terms of reducing the fund’s carbon footprint.

The city’s holdings include airlines, the automotive industry and gas distribution companies. These are not included in the ban, which only targets companies involved in the extraction, exploration or refinement of fossil fuels.

Its fund is split into four portfolios that are managed by Danske Bank, Nordea Bank, Jyske Bank and Nykredit. Municipalities aren’t allowed to invest directly in companies. They also can’t own more than 15% of a single company, according to the executive order of placement and management of funds.

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