Andra AP-fonden divests from tobacco and nuclear weapons

Andra AP-fonden (AP2) has, since its inception, worked on integrating sustainability into its portfolio management. This enables the Fund to reduce risks and generate improved opportunities for higher returns. AP2 is now taking the next step in its sustainability programme. With the support of the changes to the AP Funds Act regarding exemplary fund management, the Fund has divested from a total of about 60 tobacco companies and companies involved in the maintenance and modernisation of nuclear weapons systems.

AP2’s sustainability work is based on the conviction that it leads to an improved management return, thereby making a positive contribution to the Swedish income pension system and for pensioners. This is why the fund integrates the sustainability work into its asset management.

On 1 January 2019, new investment rules regarding sustainable asset management for the AP Funds came into effect. According to the Act, the AP Funds must manage their assets in an exemplary way through responsible investments and responsible ownership. The new regulations entail a higher level of ambition for the AP Funds’ sustainability work.

In line with the requirements of the new legislation, AP2 has analysed the conventions that are aimed at restricting the use, scope or distribution of certain products or businesses over time. The Fund has evaluated the need for a changed approach based on the underlying purpose of the international conventions.

With the support of the new regulations regarding exemplary management, AP2 has divested from tobacco companies and companies involved in the maintenance and modernisation of nuclear weapons systems.

The divestment from tobacco companies is in line with the intention of the convention on tobacco control: a sharp reduction in tobacco consumption and the harmful effects of tobacco smoke.

Divestments from companies that are involved both in the maintenance and modernisation of nuclear weapons systems are aligned with the intention of long-term disarmament of nuclear weapons in all countries as expressed in the Non-Proliferation Treaty (NPT). AP2 has previously excluded nuclear weapons companies that operate in countries that are not allowed to have them according to NPT.

For more information, please contact Ulrika Danielson, Head of Communications, Tel. +46 (0)31 704 29 00.

AP2 is one of five buffer funds within the Swedish pension system and one of the largest pension funds in northern Europe. AP2 has assets under management of SEK 334.8 billion (31 Dec 2018) in virtually every asset class and all over the world. The Fund is a long-term and responsible fund manager that has an important mission – to give those who have worked in Sweden the best possible future pension by reducing the risk of the so called the brake being released. www.ap2.se

AP2 reports a total return of –1.3 percent

The Fund posted a negative return of SEK –4.3 billion in 2018, which corresponds to -1.3 per cent, reflecting above all negative stock market developments in the global equities markets, but also good results in non-listed assets. The Fund has nevertheless exceeded its long-term return assumption of 4.5 per cent. In the last five years, the Fund’s average annual real return has amounted to 5.8 per cent and, over the past ten years, 7.7 per cent.

“For AP2, 2018 was characterised by an underlying strong global economy, but also by some turbulence in the markets as a result of various geopolitical events, preparations for the changed investment regulations and continued sustainability integration. One important aspect of the latter has been the implementation of our internally-developed indices, which focus heavily on sustainability factors. We will continue to act in the best interest of Swedish pensioners by applying a strategy characterised by a long-term outlook and perseverance, whilst continuously seeking to make improvements,” says Eva Halvarsson, CEO of AP2.

“The downturn in the equity portfolio was counteracted by solid returns on, for example, private equity investments, real estate and Chinese government bonds,” explains Eva Halvarsson.

“We welcome the new investment regulations and the opportunity to invest more in various types of non-listed assets, which could compensate for a lower anticipated return on some listed assets, help diversify the portfolio further and set better conditions for creating continued solid, risk-adjusted returns,” says Eva Halvarsson.

  • AP2’s assets under management totalled SEK 334.8 (345.9) billion as of 31 December 2018, against which net outflows to the national pension system were charged in an amount of SEK –6.8 (–7.4) billion.
  • The Fund posted a net result of SEK –4.3 (28.8) billion.
  • The Fund’s return on the total portfolio was -1.3 (9.0) per cent, after commission and operating expenses. Excluding these costs, the portfolio generated a return of –1.2 (9.1) per cent.
  • The relative return on the portfolio of quoted assets, excluding alternative investments and costs, amounted to –0.2 (0.1) per cent.
  • Operating expenses in terms of asset management costs continued to be low, amounting to 0.06 (0.06) per cent for the period.
  • Over the past five years, the Fund has generated an average real return of 5.8 per cent per year and over the past ten years, an average of 7.7 per cent per year.
Key ratios2018-12-312017-12-31
Fund capital carried forward, SEK billion334.8345.9
Net result, SEK billion–4.328.8
Net payments to the national pension system, SEK billion-6.8–7.4
Fund capital brought forward, SEK billion345.9324.5
Asset management costs: operating expenses, %0.060.06
Asset management costs: commission expenses, %0.080.09
Total asset management costs, %0.140.15
Return on total portfolio after costs, %–1.39.0
Real return on total portfolio after costs, %–3.37.1
Annualised return after commission and operating expenses, 5.0 years, %6.99.8
Annualised return after commission and operating expenses, 10.0 years, %8.86.0
Real annualised return after commission and operating expenses, 10.0 years, %7.75.0

The Swedish version of the AP2 Annual and Sustainability Report 2018 is published today and the English version will be available at www.ap2.se from beginning of March.

For further details, please contact Eva Halvarsson, CEO at AP2, or Ulrika Danielson, Head of Corporate Communications, on +46 31 704 29 00.

Andra AP-fonden – a decade of green bonds

Andra AP-fonden (AP2) today publish a report to provide an aggregated overview of the Fund’s green bond portfolio and the investments in environmental initiatives and projects. AP2 currently has a global portfolio of green bonds worth 5.7 billion SEK, comprising bonds issued by 52 different issuers and involving 1,300 different projects in 96 countries.

AP2 has now been active in the green bond market for a decade. In November 2008, AP2 participated in the World Bank’s first green bond issue, becoming one of the pioneers. Since then, the proportion of green bonds has gradually grown and since 2016 green bonds is a strategic asset class for the Fund.

“Climate change is one the greatest challenges of our time. Extensive investments are needed for a transition to a more sustainable global economy. When the opportunity to invest in green bonds was introduced in 2008, we saw a unique opportunity to combine global fixed income management and our commitment to climate change,” says Lars Lindblom, Fixed Income Portfolio Manager at AP2.

Green bonds are an efficient instrument for mobilising environmental related investments and increasing awareness of environmental issues. Today sustainability must be considered for all kind of organisations. Environmental issues involve risks as well as opportunities; everything from more frequent occurrences of extreme weather to new regulations and changing consumer preferences. Green bonds visualise and highlight sustainability efforts in organisations and investments undertaken to support the transition to a more sustainable development.

“Green bond reporting of proceeds gives us as investors more detailed information about the issuers and especially about their investments in environmental projects”, says Lars Lindblom.

The green bond market continues to grow. Interest in sustainability issues in general is increasing in the financial sector, especially in green bonds. AP2’s portfolio is expected to continue to grow on commercial terms as more and more investors choose to invest in green bonds.

Read the report on AP2´s external webpage.

For more information, please contact Lars Lindblom, Fixed Income Portfolio Manager at Andra AP-fonden, or Ulrika Danielson, Communications Manager, Tel. +46 (0)31 704 29 00.

AP2’s fund capital increased to SEK 352.4 billion

Andra AP-fonden (AP2) reported a total return of 2.9 per cent, including costs, for the first half of 2018. Relative to the benchmark index, the return was -0.1 per cent, excluding alternative investments and costs. The net result was SEK 9.8 billion, while the Fund’s assets totalled SEK 352.4 billion by the end of the first half of 2018.

– AP2’s return exceeds the Fund’s long-term return assumption of 4.5 per cent annually. In the past ten years the Fund’s average annual real return has amounted to 6.4 per cent, says Eva Halvarsson, CEO at AP2.

– During the first quarter, the Fund implemented extensive changes to its management of foreign equities by introducing new benchmarks for both emerging markets and developed markets. Through the new indices the Fund also get exposures to a number of sustainability factors that, beyond improving the portfolio’s sustainability characteristics, also improve the expected return and risk. Among other things, the new indices entail a considerably lower carbon footprint, says Eva Halvarsson.

  • AP2’s assets under management totalled SEK 352.4 (336.3) billion as of 30 June 2018, against which net outflows to the national pension system were charged in an amount of SEK -3.3 (-3.7) billion.
  • The Fund posted a first‐half net result of SEK 9.8 (15.5) billion.
  • The Fund’s return on the total portfolio was 2.9 (4.8) per cent, after commission and operating expenses. Excluding these costs, the portfolio generated a return of 2.9 (4.9) per cent.
  • The relative return on the portfolio of quoted assets, excluding alternative investments and costs, amounted to -0.1 (0.1) per cent.
  • Operating expenses in terms of asset management costs continued to be low, amounting to 0.06 (0.06) per cent for the period.
  • Over the past ten years, the Fund has generated an average return of 7.3 per cent per year and, including costs, over the past five years, an average of 9.5 per cent per year.
  • Since its inception in 2001, the Fund has generated an overall return of SEK 244.5 billion, corresponding to an average annual return of 5.9 per cent, including costs.

The complete half-year report (pdf) is published on the Fund’s website at www.ap2.se

For further details, please contact Eva Halvarsson, CEO at AP2, or Ulrika Danielson, Head of Corporate Communications, on +46 31 704 29 00.

The proportion of women on the boards and in executive positions at listed companies continues to increase and Large Caps are leading the way

AP2’s Female Representation Index for 2018 shows that the proportion of women represented on the boards of companies listed on NASDAQ Stockholm continues to increase and is now at 33.9 (32.2) percent. The proportion of women in executive positions is also increasing and in this year’s survey it was 23.2 (21.7) percent. Large-cap companies account for the largest proportion of women on boards and in executive positions with 37.7 percent and 25.8 percent respectively.

“Large-cap companies are really leading the way and the proportion of women on boards and in executive positions are 37.7 percent and 25.8 percent respectively. Excluding CEOs, the proportion of women on the boards is 39.8 percent and 41.2 percent for primary listed,” says Eva Halvarsson, CEO of AP2.

“It is gratifying to note that 44.9 percent of newly elected board members today are women. At the same pace of change as the last five years, it will take 12 years for boards to comprise 50 percent women, and 24 years for 50 percent of executive positions to be filled by women. I think it shows that nominating committees and companies are well on the way to achieving gender equality on boards and management groups, irrespective of legislation,” says Eva Halvarsson.

The proportion of women on the boards of all listed companies on NASDAQ Stockholm, excluding CEOs, is 35.5 (33.8) percent while for primary listed companies it is 36.3 (35.2) percent.

The number of companies with a female Chairman of the Board increased during the year from 19 to 28. The proportion of companies with a woman as Chairman is 8.8 (6.2) percent. The proportion of female CEOs has increased significantly during the year, from 15 to 27, representing an increase of 80 percent. However, as a proportion of all CEOs, it is still a low level of 8.4 (4.9) percent.
Since 2002, the proportion of women in listed companies has increased from 6.1 percent to 33.9 percent (+ 27.8 percent) while the proportion of women in executive positions increased from 11.1 percent to 23.2 percent (+ 12.1 percent).

Of the 320 companies in the survey, 243 have at least 25 percent women on the board compared with 224 companies in 2017.

The sectors Financial Services and Consumer Goods have the highest proportion of women in their boards, 38.6 percent and 36 percent respectively. Financial Services and Healthcare have the highest proportion of women in management, 33.3 percent and 29.4 percent respectively. The sector Utilities have the lowest proportion of women in boards and boards, 11.1 percent and 0.0 percent, followed by Oil & Gas, where the proportion of women is 22.5 percent in boards and 10 percent in management. 

Background to AP2’s Female Representation Index
AP2 has since 2003 conducted an annual survey with Nordic Investor Services to determine the proportion of women at middle management level, in executive positions and on the boards of listed companies. The survey for 2018 covered 320 primary and secondary listed companies on NASDAQ Stockholm. In addition, the survey records the proportion of women who have graduated from study programmes that constitute the traditional recruitment base for management groups and boards.
AP2 Female Index 2018. (PDF document, 2,5 MB)

For more information, please contact:
Eva Halvarsson, CEO, Andra AP-fonden (AP2), phone +46 (0)31 704 29 00
Ulrika Danielson, Head of Communications & HR, phone +46 (0)709 50 16 13

The figures refer to all companies listed on NASDAQ Stockholm, unless otherwise specified.

The Council on Ethics focuses on counteracting corruption

The Council on Ethics of the Swedish National Pension Funds (the Council) celebrated ten years in 2017. During these ten years, the Council has influenced global portfolio companies to improve their work and information regarding environmental, social issues and corporate governance through corporate dialogues. During 2017 the dialogues have included discussions and meetings with companies relating to corruption, human rights and workplace issues in several industries, where the AP Funds as active owners have worked to bring about positive changes.

The Council is working based on the mission of the AP Funds, to create high long-term returns at low risk to current and future retirees, and based on the AP Funds’ core values – proactively promoting sustainable development, acting and demanding transparency and positive changes. The Council works both pro-actively and re-actively with global companies in the portfolios of the AP Funds. The starting point is that well-managed and responsible companies over time give higher returns to lower risk. The goal of the Council’s work is that companies and industries should work systematically, structured and transparently with sustainability.

In 2017, the Council conducted dialogues in various sustainability areas, with a total of 174 companies worldwide. Corruption has been a focus area, especially in Brazil where a major corruption scandal continues to roll up. Human rights violations continue to be another important focus area, and the Council has been working on issues relating to child labor in the tobacco industry.

“Long-term and sustainable value creation in companies means taking responsibility for their business. Transparency is important for owners and other stakeholders to assess how the company works, measures and manages sustainability. In the long run, transparency is fundamental to well-functioning financial markets, says Pia Axelsson, Chairwoman of the Council in 2018.

Read more about the Council’s corporate dialogues and other engagements in the 2017 annual report (PDF document, 4,6 MB) and www.etikradet.se

For more information contact:

Pia Axelsson, Chairwoman of the Council, telephone: +46 8 787 75 72

John Howchin, Secretary General of the Council, telephone: +46 8 555 171 76

e-mail: info@etikradetapfonderna.se

The Council on Ethics of the Swedish National Pension Funds (the Council)

The Council is a collaboration between First, Second, Third and Fourth AP Funds, which have the mission of the Riksdag to create high long-term returns at low risk to current and future retirees. The Council works to contribute to the AP Fund’s long-term returns by encouraging corporate social responsibility in business as regards to environment, social issues and corporate governance.

The Council aspire to make a difference. We seek to exert influence on companies all over the world in regard to sustainability issues, human rights, ethics, the environment, issues of great importance to people and society. Issues which can destroy or create value for companies. We use dialogue to get companies to adopt proactive measures and to deal with incidents. This is how we can mitigate and prevent problems and accidents in a range of companies and industries. And this is how we perceive we can contribute to sustainable development and importantly, sustainable pensions for current and future pensioners.

AP2 invests 99 billion according to internally developed ESG indices

During 2017 AP2’s employees designed new indices for the global equities asset class. This means that the Fund now has ESG exposure on all internal capital in the foreign equity asset class, totalling SEK 99 billion. This is an important part of the Fund’s continued work with implementing ESG factors (Environmental, Social and Governance) in investment decisions. The new indices are fully in line with AP2’s mission, as they are expected to give a greater return at a lower risk and at the same time take into account aspects of sustainability.

“We analysed which properties that were interesting to have in our new indices and concluded that we wanted to have exposure to four properties, but just two indices. This means that we have designed the indices for the benefit of equities in companies that have a low value and a good ESG profile, and equities whose returns are low volatile and independent of the returns of other equities,” says Tomas Morsing, Head of Quantitative Strategies at AP2.

At the end of 2016, a project was initiated with the aim of replacing the current six single factor indices with two new ones; one for developed countries and one for emerging countries. These two indices would reflect all the properties that AP2 is seeking exposure to, so-called multi-factor indices.

Including exposure to companies with a good ESG profile in the indices has been especially important for AP2. That is why the Fund’s new indices consider many different aspects of climate and environment, social factors and corporate governance factors during index construction. For example, equities in companies
with low carbon dioxide emissions or that have many women employees are favoured, while equities in companies that are often involved in a variety of controversies or that attempt to devote themselves to manipulative accounting will receive a lower index weighting.

“Our new indices include many properties in ESG. To determine what we should focus on, we have turned to our sustainability strategy, our previous ESG work and to research within the area,” says Tomas Morsing.

Previously, AP2 purchased finished indices from an external party, but the indices will now be designed internally. For this purpose, the Fund has developed a methodology that makes it possible to compare and study how the different properties affect an index return and risk profile.

“When we tested the indices on historical data, we saw that we could evaluate the ESG higher than the other three properties without sacrificing the return or increasing the risk. This is completely in line with our assignment at AP2,” says Claes Ekman, Quantitative Portfolio Manager at AP2.

For further details, please contact Tomas Morsing, Head of Quantitative Strategies at AP2, +46 31 704 29 00, or Ulrika Danielson, Head of Corporate Communications, on +46 31 704 29 29.

AP2 publishes report in line with TCFD recommendations

The Second Swedish National Pension Fund (AP2) is one of the first investors to have published a report in accordance with the Task force on Climate-related Financial Disclosures (TCFD) recommendations.

”We wanted to start reporting as soon as possible, both for the sake of our own learning but also because we want to know what we are talking about when we engage in dialogues with companies. We also hope our report can inspire others. It remains to be seen how widely the framework will spread among other asset owner and asset managers but generally speaking, there is very strong support for the TCFD recommendations,” says Christina Olivecrona, senior sustainability analyst at AP2.

At the end of 2015, the Financial Stability Board established a task force, TCFD, to draw up a set of disclosure recommendations which would help actors in the financial markets to understand their climate-related risks and opportunities. The TCFD framework is voluntary and applicable to all types of organisations. The TCFD recommends that disclosure reports should describe: 1) how climate-related issues are handled by the organisation’s governing organs (board and executive management team), 2) what strategy the organisation has regarding climate change and the transition to a low-carbon economy, 3) the organisation’s climate risks and opportunities, and 4) the metrics and targets used by the organisation.

”We are positive to the TCFD framework since it will increase the transparency of companies and hopefully provide investors with the information they need to assess a company’s climate risks and opportunities. The framework is also an important tool for our own activities since it provides a structured way of describing and communicating the Fund’s climate work,” says Christina Olivecrona.

In the autumn of 2017, AP2 started implementing the TCFD recommendations. AP2 has used the suggestions given in the TCFD recommendations to analyse its climate work, both with regard to industries generally and the specific guidance given to asset owners.

”The purpose of our efforts in 2017 was to improve information acquisition and describe our current climate management in the way prescribed by the framework. Our TCFD report describes the Fund’s climate management in the way set out in the framework and it gives examples of potential ways for us to develop our work regarding climate-related risks and opportunities,” says Christina Olivecrona.

Read the report here.

For further details, please contact Christina Olivecrona, Senior Sustainability Analyst at AP2, +46 31 704 29 00, or Ulrika Danielson, Head of Corporate Communications, on +46 31 704 29 29.

Second AP Fund reports a total return of 9.1 percent for 2017

The Second Swedish National Pension Fund (AP2) reported a total return on investment of 9.1 percent for the full twelve months, excluding expenses. Assets under management rose to SEK 345.9 billion. The net result was SEK 28.8 billion. The Fund’s performance in 2017 means that it once again has exceeded the long term targeted return in both the long and short term.

CEO, Eva Halvarsson, comments on the result:

“Our return has continued to develop positively after yet another year with good results at a low cost. We are following our long-term strategy and have worked intensively in the area of sustainability.”

“The average annual real return for the last five and ten years amounts to 9.0 and 5.0 per cent respectively. This exceeds our long-term goal and shows that over time we have the ability to create value for Sweden’s pensioners, even in periods characterised by a turbulent world around us with financial crises.”

“Our costs remain low even though in 2017 we experienced an increased cost in the supply chain. The way we deal with this is to manage more and more internally and continue to develop our activities in a cost-effective way. This means that in the cost evaluations, we continue to be highly competitive and keep our distance to most other actors in the industry.”

“We aim to develop our portfolio in line with the two-degree target and our vision has long been to integrate sustainability in all our management.”

“An important step in integrating sustainability as part of the investment decisions is that we have continued to implement ESG (Environmental, Social and Governance) in the global equities asset class in our internal quantitative management. It is approximately 29 per cent of the total portfolio and amounted to SEK 99 billion at year-end. During 2017, we designed two new so-called multi-factor indices where, ESG is the most important factor for the weighting in the indices.

  • AP2’s assets under management totalled SEK 345.9 (324.5) billion on December 31, 2017, against which net outflows to the national pension system were charged in an amount of SEK –7.4 (–6.6) billion.
  • The Fund posted a net result for the year of SEK 28.8 (30.5) billion.
  • The Fund’s return on the total portfolio was 9.1 (10.5) per cent, excluding commission fees and operating expenses. Including these costs, the portfolio generated a return of 9.0 (10.3) per cent.
  • The relative return on the total portfolio, excluding alternative investments and costs, amounted to 0.1 (–0.4) per cent.
  • Operating expenses, expressed as a percentage of asset management costs, remained low and amounted to 0.06 (0.07) per cent.

The English version of the AP2 Annual and Sustainability Report 2017 will be available at www.ap2.se from beginning of March.

For further details, please contact CEO Eva Halvarsson, Second Swedish National Pension Fund, +46 31 704 29 00, or Ulrika Danielson, Head of Corporate Communications, on +46 31 704 29 29.

The Second AP Fund generates stable return despite turbulent market

The Second AP Fund (AP2) posted a net result of SEK 15.5 billion for the first half of 2017 and the Fund’s assets under management totalled SEK 336.3 billion. The Fund posted a total return of 4.8 percent, including costs. Relative to benchmark index, return was 0.1 percent, excluding alternative investments and costs.

“Despite a turbulent market, the Second AP Fund posted a total return of 4.8 percent for the first half of 2017. Our long-term strategy of greater exposure to emerging markets and other sectors – combined with a determination to manage as much of the Fund’s capital in-house as possible – have both contributed to a solid net result and to continuing low costs in relation to the volume of assets under management,” says Eva Halvarsson CEO of the Second Swedish National Pension Fund.

  • The Second AP Fund’s assets under management totalled SEK 336.3 (308.0) billion on June 30 2017, against which net outflows to the national pension system were charged in an amount of SEK -3.7 (-3.2) billion.
  • The Fund posted a first-half net result of SEK 15.5 (10.6) billion.
  • The Fund’s return on the total portfolio was 4.9 (3.7) percent, excluding commission and operating expenses. Including these costs, the portfolio generated a return of 4.8 (3.6) percent.
  • The relative return on the portfolio of quoted assets, excluding alternative investments and costs, amounted to 0.1 (-0.7) percent.
  • Operating expenses in terms of asset management costs continued to be low, amounting to 0.06 (0.07) percent for the period.
  • Over the past ten years, the Fund has generated a return on invested assets of 70.4 percent, excluding costs, corresponding to an average annual return of 5.5 percent. Less inflation, this is equivalent to an annual real return of 4.4 percent.
  • Since its inception in 2001, the Fund has generated an overall return of SEK 221.3 billion, corresponding to an average annual return of 5.9 percent, including costs.
Key ratiosJan-June 2017Jan-June 2016Jan-Dec 2016
Fund capital carried forward, SEK billion336.3308.0324.5
Net result for the period, SEK billion15.510.630.5
Net payments to the national pension system, SEK billion-3.7-­3.2-6.6
Fund capital brought forward, SEK billion324.5300.6300.6
Asset management costs, operating expenses, %0.060.070.07
Asset management costs, commission expenses, %0.080.090.08
Total asset management costs, %0.150.160.15
Return on total portfolio after costs, %4.83.610.3
Real return on total portfolio after costs, %4.02.88.5
Annualized return after commission and operating expenses,
5.0 years, %
10.4
Annualized return after commission and operating expenses, 10.0 years, %5.3
Real annualized return after commission and operating expenses, 10.0 years, %4.2

The complete half-year report (pdf).

For further details, please contact CEO Eva Halvarsson, Second Swedish National Pension Fund, or Ulrika Danielson, Head of Corporate Communications, on +46 31 704 29 00.