The Second AP Fund has further integrated sustainability as part of its asset management strategy by incorporating ESG (Environmental, Social and Governance) factors into its quantitative management of asset class global equities. Consequently, SEK 90 billion of Fund capital is now managed in line with ESG considerations. A broader range of decision data enables better investment decisions, resulting in a higher return for Sweden’s pensioners.
The Second AP Fund makes sustainability an integral part of its asset management activities by incorporating sustainability factors into its analytical and decision processes. This enables the Fund to reduce risk and improve the potential for an increased return on investment. The Fund is convinced that companies committed to long-term sustainability are also those that generate solid long-term returns.
“One reason for making the integration of sustainability a priority in our asset management strategy is the conviction that it generates better long-term returns. Consequently, we have a comprehensive understanding of this area and a large number of staff who are keenly interested in these issues,” states Eva Halvarsson, CEO of the Second AP Fund.
Breadth of decision data
During the autumn, ESG factors have gradually been integrated into the Second AP Fund’s in-house developed mathematical model for asset class global equities. The implementation process is scheduled for completion before the end of the year, when ESG considerations will become integral to investment decisions, in conjunction with the other factors on which the model is based.
“We are one of few players in the industry to have taken this process to the next level, by analysing the basic data instead of relying on pre-determined ESG factors. It is vital to get as close to the basic data as possible, a recognition that is fully in line with the Fund’s overall approach to quantitative asset management,” notes Tomas Morsing, Head of Quantitative Strategies at the Second AP Fund.
On the one hand, the Second AP Fund’s ESG model comprises environmental factors of a concrete nature, such as the level of companies’ carbon emissions or how much energy they consume. On the other hand, the model also comprises data and indicators relating to social and corporate governance factors that may be said to provide an impression of the company.
Importance of values and corporate culture
An interesting observation made by the Fund is that companies featuring a high proportion of women in leading positions also note stronger growth, regardless of size or type of company. One possible explanation is that these companies are more focused on issues relating to values and corporate culture. This is reflected in the Fund’s measurable indicators, such as the proportion of women in leading positions or the range of in-company training.
The next stage of this process is to get still closer to a strategic working approach by developing an ESG-weighted index for quantitative equities management. Furthermore, in our management of global corporate bonds, we also plan to integrate ESG factors in the same way as we now do for equities.
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.