Stockholm (NordSIP) – Defining impact and exploring the possibilities to generate positive impact through listed equities remains a challenge for most investors. Hence when I was invited to moderate a panel at an event organised by Amsterdam-based impact specialist Phenix Capital, I gladly accepted. The panel included the representatives of two very different institutions: the Swedish state buffer fund AP3 and the Swedish Church. Gunnela Hahn (pictured right), who has been working as Head of Responsible Investment at the Church for more than ten years, and previously led sustainable investment efforts at Folksam Asset Management, has been involved with impactful investments early on. Claudia Stanghellini (pictured in the middle), AP3’s Head of External Management for the past six years, shared her organisation’s ongoing progress.
Recently, the Swedish legislation that regulates the mandate of the AP funds has changed to include a more specific mission regarding sustainability. The AP funds are to be sustainable and lead by example. From Stanghellini’s point of view, her organisation understands this mission, and the thoughts around sustainable investing are well integrated in the organisation. However, when it comes to transitioning to more impactful investment solutions, the journey has just begun. “At AP3, we put a particular emphasis on corporate engagement for a large part of our listed investments, and we try to make a positive impact, especially with our direct investments.” Stanghellini mentions four stated goals that her organisation is currently working on. The first goal, which has already been achieved was to halve the carbon footprint between 2014 and 2018. Furthermore, AP3 has tripled its investments in green bonds and doubled its strategic sustainability investments to SEK 20 billion. Finally, through its 25% ownership of real estate company Vasakronan, AP3 is part of leading the country’s green building movement.
At the Church of Sweden, Hahn recognises that she is fortunate to have a broad mandate that has been specifically designed to achieve positive impact. The Church can, therefore, invest in long-term opportunities, which have a stated purpose to generate positive externalities for society. One of the examples Hahn talks about is the Al Gore founded asset manager Generation IM, with whom the Church invests a large part of its portfolio, mainly in listed equity funds. They pick stocks that contribute to a sustainable society and perform well financially. This is what the Church wants to see more of in the market. She mentions that a handful of more traditional impact funds, as well as green bonds, are also part of the allocation. For her, distinguishing between different listed equity funds which claim to generate impact is not a complicated science. Looking at a fund’s holdings is generally an excellent place to start. The manager also has to be able to explain the reason behind each of these choices in a manner that is coherent with a long-term impact-oriented strategy.
Some of the hurdles Stanghellini sees in opening up to the multitude of new investment products and strategies that brand themselves as being “impact funds” are traditional hurdles that many asset managers encounter when approaching large pension funds. Products must exhibit a track-record of a given length (most of the time, at least three years) and they have to reach a certain size of assets under management. Cost is also a dimension the AP funds have paid much attention to in the past few years.
In the audience, Els Ankum-Griffioen of Triodos Investment Management challenges AP3’s focus on fees. “Will your fee savings matter to your pensioners when climate change will have made life on earth so difficult?” she asks. Moving a large and complex portfolio takes time, and the motion has already started, Stanghellini believes. Currently, AP3 is already evaluating investments in a few impact funds. In addition, the organization achieves positive impact on its direct private investments, such as water infrastructure projects. The fund’s engagement efforts which are often organized in concert with other AP funds through the Ethical Council are one of the pillars to ensure the capital invested in public markets generates positive impact.
If she had to make one wish to accelerate the move of capital towards more sustainable causes, Hahn believes in achieving a better collaboration around benchmarks. Since most organisations need benchmarks against which to measure their investments, the construction of allocation models and indices is crucial. For Hahn, the way the Church has built its financial policy has been very powerful, since it clearly states how the financial value should be created in the portfolio. This holistic approach combined with long-term incentives is today often a luxury, but it needs to be built into the system of asset management if this planet is going to be a good place to live on also in the future.
Picture © Phenix Capital