The Third Swedish National Pension Fund (AP3) is extending its sustainability profile by introducing new targets to further reduce the carbon footprint of its investment portfolio. The move comes after AP3 signed the Paris Pledge for Action on 24 November, adding its weight to the agreement signed at the 2015 United Nations Climate Change Conference (COP21) in which 195 countries agreed to adopt challenging targets to tackle climate change.
Climate change will lead to shifts in the use of global resources and has a direct effect on AP3’s portfolio returns, which is why we have elected to focus specifically on climate impact.
AP3 believes that well managed companies offer investors superior returns and lower risk over time. Sustainability gives rise to risks and opportunities for AP3, just as it does for all companies. This explains why the Fund has incorporated sustainability into its investment strategy for creating long-term value on behalf of the Swedish state pension system.
In December 2014 the Fund began measuring the listed equity portfolio’s carbon footprint. This analysis found our portfolio to be climate-neutral, reflecting the fact that emissions of greenhouse gases by the companies in which we invest are largely offset by our timberland holdings,*) which act as an effective carbon sink.
Notwithstanding this strong starting point, AP3 has ambitious goals to reduce further the climate impacts of its portfolio holdings. In this regard, the Fund has adopted different strategies for its different shareholdings. In May 2015 AP3 sold all its shares in coal mining companies.
Today we announcing new targets for 2018 that we intend to monitor on a yearly basis:
- The carbon footprint of our holdings in listed equities and credits will be halved by 2018 compared to 2014. AP3 also urges all companies to issue reports regularly on their carbon footprint by 2018 at the latest.
- AP3 intends to help develop the market for green bonds in accordance with COP21. We will more than triple our holdings of green bonds from SEK 4.5 billion to SEK 15 billion by the end of 2018.
- AP3 will double its strategic sustainability investments, for example in water treatment, from SEK 10 billion to SEK 20 billion, by the end of 2018.
- AP3 will work to ensure that Vasakronan, Scandinavia’s largest real estate company (in which AP3 owns a 25% equity stake), will continue to lead the way in sustainability in the real estate sector in Sweden.The Fund will also make it a priority to ensure that its other real estate investees (Hemsö, Trophi, Regio et al) adopt ambitious sustainability policies as they mature.
Mårten Lindeborg, AP3 Deputy CEO and Chief Investment Officer, commented:
“Sustainability is a matter of risk assessment and puts a lot of responsibility on an organisation such as ours. The priorities that we have set are based on our analysis of what creates long-term value. For us, this is about high standards of corporate stewardship and social responsibility and good environmental practices. The introduction of these changes will affect the entire portfolio. As investors we are doing our bit, but ultimately it is up to the companies to ensure their operating activities are sustainable
*) Various assumptions are attached to the measurements of the listed equity portfolio and timberland holdings. Nevertheless, the figures provide a guide that can be used to identify risks and opportunities and also analyse any improvements in the portfolio and the underlying investment universe.
Read more about sustainability at AP3 here
A summary of AP3’s sustainability engagements is available here.
- AP3 in 2004 makes its first timberland investment in FSC-certified company Bergvik Skog.
- The AP funds in 2006 establish a joint Ethical Council to manage environmental and social governance issues in foreign investees.
- AP3 in 2007 invests in green bonds, which are used to finance projects to combat climate change or help countries adapt to the impact of climate change. AP3 invests in a cleantech fund that holds Nordic equities in the renewable energy, energy efficiency, renewable materials, recycling and waste treatment sectors.
- AP3 signs a range of ESG initiatives to promote low-fossil-fuel use, anti-corruption and human rights.
- AP3 in 2014 trains all employees in environmental issues, human rights and other sustainability aspects.
- AP3 in 2014 measures the carbon footprint of its equity portfolio. The result shows the Fund’s footprint to be 27% lower than the benchmark index. The Fund also measures the positive carbon footprint of the timberland portfolio. The result balances the carbon footprint of the equity portfolio.
- AP3 in 2014 introduces an internal process for positive and negative equity screening based on various sustainability criteria.
- AP3 in May 2015 sells all its investments in coal mining companies.
- AP3 in November 2015 signs the Paris Pledge for Action.
- AP3 in December 2015 publishes a series of new targets for 2018.
AP3 is one of five so-called buffer funds – known as AP funds – within the Swedish pension system. As at 30 June 2015, the Fund had SEK 304 billion of assets under management. AP3 is tasked by Parliament with generating maximum possible benefit for the state pension system by managing its fund capital so as to deliver strong investment returns at a low level of risk. In the last five years, AP3 has delivered an average annual return of 6.6%, which represents a significant positive contribution to the pension system when compared with a 3.0% rise in the income index, which is used to keep pensions in line with inflation. Sustainability is fully integrated in our investment management strategy and the portfolio has been carbon-neutral since 31 December 2014.
For further information, please contact:
Mårten Lindeborg, AP3 Chief Investment Officer and Deputy CEO, +46 855517155 firstname.lastname@example.org
Lil Larås Lindgren, AP3 Head of Communications, +46 855517123, email@example.com