Stockholm (NordSIP) – Alecta is one Sweden’s largest pension funds. It manages SEK 800 billion on behalf of 2.4 million private customers and 34,000 companies. Only a few years ago, owners, the board and management identified the need to improve the company’s approach to sustainability. NordSIP sat down with Carina Silberg, Head of Sustainability at Alecta, to better understand her role within the firm, and what she aims to achieve concretely in 2018.
Silberg, like many in the asset management industry in Stockholm, believes that sustainability has become a mainstream concept. Few ignore the pull to get on board with this new trend. None, however, can say that they have arrived at the end of their journey. Far from it, mountains of hurdles still need to be overcome. So concretely, what are the next steps? How does such a large company like Alecta work on a day-to-day basis to further its sustainability agenda?
Alecta’s investment approach differs from that of many other pension funds, in that it has an actively managed portfolio. The equity portfolio is quite concentrated given its size, as it holds approximately 100 selected stocks and each investment decision is based on internal analysis. Given the firm’s belief in long-term value creation, sustainability becomes a crucial element. One of the issues Silberg sees as key to accelerating the integration of ESG considerations in the investment process is the gap between the role of ESG analyst and financial analyst. “Traditionally these have not been the same people,” she says. “Until only recently, an ESG analyst often didn’t have a formal background in finance. And financial analysts were not coming off as literate in sustainability either.”
For Silberg, having people of different backgrounds is an excellent way to foster a debate, but without a link between them, it becomes hard to reconcile their ideas, and it takes time to find concrete solutions. Silberg mentions the current discussions that surround green bonds. “It is an interesting debate,” she says. “People have the same ambition, but they use very different avenues to get there. You wouldn’t think of green bonds as being controversial, but the devil is in the detail. Take the question of additionality for instance.” Silberg refers to a question that many green-bond sceptics ask: “Couldn’t this project have been built even without a green bond? Perhaps, but green bonds enable us to show our beneficiaries that their pensions are invested in environmental improvements, and it is a financial instrument with a risk-adjusted return that we can evaluate.”
Magnus Billing, Alecta’s CEO is especially engaged in these debates and has recently participated in the High-Level Expert Group (HLEG) on Sustainable Finance, mandated by the European Commission to propose concrete solutions to these types of questions. Silberg continues: “For us at Alecta, it is important to be able to tell our pensioners that we – and they – are contributing to the green transition, and that it is aligned with our assignment to create the highest value possible for their occupational pensions. When Magnus Billing started as CEO two years ago, he put sustainability at the top of his agenda, and as part of that effort, my role was created to integrate sustainability throughout the organisation. Part of my responsibility is to introduce relevant sustainability goals and KPIs for the entire company.”
“Our carbon direct footprint is quite small,” confesses Silberg, “but it is important for all stakeholders that we fit all aspects into our approach to sustainability. Everyone has to act together, and I am responsible for overseeing that. We are also engaging in external initiatives. Peter Lööw, Head of Responsible Investment, is active with SWESIF and UN PRI, and Magnus with the HLEG and SIDA. I’m more involved with the Global Reporting Initiative (GRI), the Global Compact and the Sustainable Development Goal (SDG) reporting framework. Internally, we have a working group for sustainability, with members representing several of our departments.”
“My agenda for 2018 is to finalise our work internally with sustainability goals and indicator frameworks. From there, we can see where we want and need to leverage our work. For instance, the asset management has the ambition to align the equity portfolio with the 2-degree scenario. But it is not easy to measure right now. We need to strengthen tools in the analysis process and investment process to align with that goal. Another example is our committment to the Climate Action 100+, which is a UN PRI initiative to target the 100 largest carbon emitters. We must learn how to apply the learnings drawn from this initiative to our portfolio. We are also endorsing the development of the Taskforce on Climate-related Financial Disclosure (TCFD).”
Picture © Alecta, NordSIP