Climate change is expected to have a major impact on long-term returns. The Fund has an internal working group on fossil energy and financial climate risks. Since 2013, work has been ongoing on analysing financial climate risks for fossil energy companies and coal-based electric power companies.
In 2018, climate risk analyses were followed up for fossil energy companies, which resulted in further divestments from seven fossil energy companies. Three fossil energy companies have been reintroduced to the Fund’s benchmark index, as they no longer meet the criteria that AP2 has for divesting from companies in these sectors. In total, the Fund has divested from equities and corporate bonds in 83 companies due to financial climate risks, including 23 coal, 20 oil and gas companies and 40 utility companies.
Financial contributions of the divestments
To monitor the financial contributions of the divestments, in 2017 AP2 produced a methodology of comparing returns for MSCI World, excluding and including the divested companies. Of the 83 divested companies, 32 are or have been included in the MSCI World index. The contribution to returns from Autumn 2014 to 31 December 2018 after excluding these companies from the index has been positive at 1.22 per cent. At year-end, the divestments represented 2.1 per cent of MSCI World. A large proportion of the Fund’s divested companies are Chinese companies and companies in emerging markets, which are not included in MSCI World.
During 2018, the Fund developed the methodology for MSCI Emerging Markets. Of the 83 divested companies, 31 are or have been included in the MSCI Emerging Markets index. The contribution to returns from Autumn 2014 to 31 December 2018 after excluding these companies from the index has been positive at 0.11 per cent. At yearend, the divestments represented 1.7 per cent of MSCI Emerging Markets.