The climate issue is particularly important to Andra AP-fonden, in view of the extensive potential impact of climate change on the living conditions of future generations, and also on the Fund’s return and achievement of its goals. This is also a very long-term issue that has prolonged and sometimes irreversible consequences. Furthermore, climate change is closely linked to many other areas of sustainability, particularly Andra AP-fonden’s focus areas of biodiversity and human rights.
AP2 shall have a portfolio with net zero emissions by 2045.
The Fund’s goal is for the entire portfolio to be in line with the Paris Agreement, i.e. for the portfolio’s greenhouse gas emissions to decrease at a rate that can limit global warming to 1.5 degrees. The Paris Agreement stipulates that net zero emissions must be achieved by 2050 at the latest. Since Sweden has committed to a steeper reduction, with net zero emissions as early as 2045, AP2 believes that this target should also apply to the Fund.
The starting point for AP2’s climate work is to contribute to a transition in line with the Paris Agreement by:
- making targeted sustainability investments
- supporting the transition
- divesting from climate risks.
Targeted sustainability investments
Creating a low-carbon society requires major investments, and AP2 supports the transition through targeted sustainability investments in different asset classes. Most of the targeted sustainability investments the Fund has made so far are focused on the climate transition, for example:
- Private equity funds with a special focus on positive climate impact, which invest in companies whose products and services enable resource-efficient solutions, renewable energy and reduced emissions.
- Green bonds that finance wind and solar power.
- Forest properties that meet AP2’s criteria for sustainable forestry.
- Sustainable infrastructure, including renewable energy and energy storage.
- Swedish listed cleantech companies, with companies working on both energy and resource efficiency.
Supporting the transition
AP2 works as an active owner to support the transition within its holdings in various asset classes. This work is based on analysis and impact work, in dialogue with companies and decision-makers.
Making adjustments to the portfolio, such as divesting companies with high carbon emissions and investing in companies with lower emissions, can reduce the portfolio’s total carbon footprint. However, this does not lead to any change in the total carbon emissions to the atmosphere, i.e. the climate risk for the world is not affected by the Fund’s purchases and sales. It is only when companies cut their actual emissions that atmospheric emissions are reduced, and climate improvements are achieved. As an asset owner, AP2 therefore works actively by various means to influence its portfolio companies to reduce their carbon emissions. The Fund does this in dialogue with the companies, often collaboratively with other global investors, by requiring the companies to report their climate risks, and by using governance, processes and activities to manage these risks in accordance with TCFD (Task Force on Climate-Related Financial Disclosures). AP2 is also a committed owner regarding these issues, for instance at general meetings of shareholders.
Divest from climate risks
AP2 does not invest in companies that derive more than a certain percentage of their sales from coal, oil and/or natural gas, or in energy companies that receive more than 50 per cent of their revenue from combustion of fossil fuels. The maximum share of revenue from coal is 1 per cent, from oil 10 per cent and from gas 50 per cent. In conjunction with the Fund’s implementation of the EU Paris-Aligned Benchmark (PAB) for foreign equities and corporate bonds, the Fund divested around 250 companies with fossil fuels.
To be able to support the transition and conduct advocacy work, it is important to understand the portfolio’s emissions and the drivers behind the change in emissions, as well as the extent to which these contribute to actual global emission reductions. The Fund analyses this annually using an internally developed model that shows what caused the change in carbon footprint. AP2 also makes more detailed assessments, for example of how the companies in the Fund’s portfolio work with climate adaptation of their operations. The outcome of these analyses forms the basis for, among other things, the Fund’s engagement work.
The Fund’s engagement work takes place at several levels; through dialogues with companies, and through commitment to support the political measures required to make the transition possible. Dialogues are conducted under our own auspices, but also with other investors in various investor networks such as Climate Action 100+ (CA 100+) and the Net Zero Engagement Initiative (NZEI). Together with other investors in CA 100+ and NZEI, AP2 leads the dialogues with AB Volvo, Sandvik, Holmen, Essity and Assa Abloy, among others.
To further support the transition, policy measures and commitment are also required, where institutional investors such as AP2 have an important role to play. In connection with recent years’ climate summits, AP2 and more than 500 international investors have supported a statement, the Global Investor Statement to Governments on the Climate Crisis, published by the Institutional Investors Group on Climate Change (IIGCC). The statement urges governments to increase their climate policy measures, including more direct climate regulation by both the financial sector and companies.
AP2 works with other European investors on climate issues through membership of the IIGCC. The aim is to promote the investors’ views on these issues and to engage with companies, authorities and other investors in order to highlight long-term risks and opportunities that arise in connection with climate change. IIGCC is an effective platform for communicating investors’ wishes in the climate field. The organisation is also a platform for collaboration with other investors in terms of both dialogues with companies and the development of methods and tools for investors.
AP2 reports in accordance with the Task Force on Climate-related Financial Disclosures (TCFD ). The recommendations are aimed at both companies and investors, and since 2018 the Fund has published an annual climate report in accordance with TCFD’s recommendations.
Reporting in accordance with the TCFD’s framework includes information on: 1) how the climate issue is handled by the organisation’s governing bodies (board of directors and executive management), 2) the organisation’s strategy relating to climate change and the transition to a low-carbon society, 3) the organisation’s climate risks and opportunities, and 4) the metrics and targets used by the organisation. A full TCFD report is available on the Fund’s website.