AP7 Completes Climate Transition Project

    Stockholm (NordSIP) – Since the adoption of the Paris climate agreement in 2015, Sweden’s €78 billion AP7 has implemented a series of 3-year sustainability-focused thematic projects.  This month sees the completion of AP7’s work on the Climate Transition, following earlier projects covering climate change and climate lobbying, along with the publication of the fund’s report on the theme.

    AP7’s ESG strategy is built around targeted collaborative engagement using the persuasive power of its own and other large asset owners’ extensive portfolios.  The work has fed into the fund’s Climate Action Plan and seeks to prioritise real world emissions reductions rather than a pure focus on climate-related financial risk.  AP7 is a strong proponent of engagement over divestment, believing that sustainable investors should remain invested in high-emitting companies while putting pressure on them to implement effective transition measures.  It maintains a blacklist of excluded companies for instances where engagement fails or the companies breach core sustainability criteria.

    Among the engagement examples offered up in the Climate Transition report, AP7 cites the case of Rio Tinto, which had rebuffed initial approaches in 2017.  Once a dialogue had been established AP7 was able to steer the firm towards disclosing its climate lobbying activities and terminating its membership of one of the more problematic industry associations. More broadly, AP7 seeks to categorise its portfolio companies according to the state of their climate transition plans, using methodology aligned with the CA100+ Net Zero Company Benchmark and Transition Pathway Initiative (TPI).  The goal is for 50% of the higher-emitting companies to have credible transition plans underway by 2025, with the ultimate goal of 100% planned for 2030.

    The thematic work has also fed into AP7’s partnership with Legal & General Investment Management (LGIM), with whom they announced the launch of a new active climate transition strategy in May 2023.  The strategy aims to drive real-world change as well as unlock long-term shareholder value by investing in, and then engaging with, specific companies that are climate laggards in their sectors.

    While supporting the work of large-scale initiatives like Climate Action 100+ (CA100+), AP7 is also mindful of the challenges of agreeing on governance and engagement details with so many other asset owners.  The fund advocates active ownership via the “three L” method: Large, Local and Loud.  Working with local investors with a deep knowledge of their own market’s culture and practices is beneficial, and AP7 also seeks to work with partners willing to escalate via the use of resolutions, voting, public statements, and other measures.  It has also been putting greater emphasis on company boards, based on the conclusion that credible transition strategies will only be effective when driven from the very top of the corporate ladder.

    AP7’s ongoing thematic work continues, with concurrent projects focused on Deforestation and Biodiversity, Universal Active Ownership, and Board Responsibility.  A dedicated Climate Transition webinar is scheduled for November 2023, wherein AP7’s Head of ESG and Communications Johan Florén will moderate a panel discussion with Ylva Wessén, President and CEO of Folksam, John Hassler, Professor of Economics at Stockholm University, and Svante Axelsson, national coordinator for Fossil Free Sweden.

    Image courtesy of Orlando from Pixabay
    Richard Tyszkiewicz
    Richard Tyszkiewicz
    Richard has over 30 years’ experience in the international investment industry. He has worked closely with major Nordic investors on consultancy projects, focusing on the evaluation of external asset managers. While doing so, Richard built up a strong practical understanding of the challenges faced by institutional investors seeking to integrate ESG into their portfolios. Richard has an MA degree in Management and Spanish from St Andrews University, and sustainability qualifications from Cambridge University, PRI and the CFA Institute.

    Latest Posts


    NordSIP Insights Handbook

    What else is new?

    ESG Leaders 2023