PENSION FUNDS’ ROLE AND OPPORTUNITIES IN LONG-TERM INVESTMENTS Idar Kreutzer, CEO, Finance Norway Nordic Conference on Green Investments and Nordic Pension Funds, May

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Risk management - when risks collide 3

4 Transitioning from high to low carbon economy require significant investment In the next 15 years… Source: Better growth, Better Climate – The New Climate Economy Report

Insurers are the largest institutional investors in Europe 5 Source: ”Funding the future”, Oliver Wyman, 2013

Liability driven investments Valuing liabilities – and matching the duration If the liabilities' duration is 15, then a 2 percentage points fall in interest rates alters the present value of liabilities with 30% if this change is simply carried through for the purpose of liability valuation Which assets (apart from too few long dated bonds) yield 30% with certainty over 4 months? 2 % point fall in rates Assets 100 Liabilities 100 Liabilities 130 Assets % increase in liabilities Example: duration 15 Source: Bloomberg 20 yrs swap ? 6

7 Limited investments in infrastructure Source: ”Funding the future”, Oliver Wyman, 2013

8 Changing framework conditions affect insurers’ ability to invest long-term A raft of regulatory changes are affecting insurers Source: ”Funding the future”, Oliver Wyman, 2013

Key implications Regulatory asset risk will become a key driver Asset-liability-matching strategically important Increased focus on liquidity and rating Affects insurers’ investment decisions Moving away from long-term assets Distorting effect on financial markets and the economy Higher cost of funding for corporates and governments Source: Oliver Wyman, ”Funding the future”,

10 Expected demand for investments in urban infrastructure until 2030 (US$ 1000 billion) Assets under Management, % of GDP Source: Deutsche Bank and G20/OECD Policy Note on Pension Fund Financing for Green Infrastructure and Initiatives 10 A perfect match

The responsible investment framework