Stockholm (NordSIP) – In the middle of November, AP7 published the third update to its Climate Action plan, the Swedish public pension fund’s main steering tool in its work to mitigate climate change. The report notes that assets have grown to SEK1.3 trillion. The transition mandate and how the growth of sustainable assets has affected the relationship between the sustainability team and asset management at AP7 appear to be the main developments so far.
This week, AP7 also added EOG Resources, Inc (from the US) and MEG Energy Corp (from Canada) to its exclusions list. Both companies were excluded for “acting against the targets of the Paris agreement through large scale oil operations without transition plans”. Two companies have been removed from the list Hitachi Zosen Corp och SGL Carbon SE are no longer blacklisted based on the lack of verified information about ongoing violations by the companies.
Investing in the Transition
In June 2023, AP7 announced it partnered with Legal & General Investment Management (LGIM) to develop an active climate transition investments strategy as part of AP7’s transition portfolio.
“If I were to highlight one initiative from our climate action plan, it would be our transition mandate. The core idea is to invest in companies with significant climate impact that have the potential to reduce their emissions while generating returns. In 2023, we initiated a partnership with LGIM to develop this mandate as part of our external asset management, and we are currently working on building an internal transition mandate set to begin investments in 2025,” Charlotta Dawidowski Sydstrand (Pictured), Head of ESG at AP7, tells NordSIP.
“In addition to an external management mandate, in the transition portfolio, which we initiated previously, we are currently building an internal mandate that will begin its investments in 2025. The fund’s mandate for alternative assets is also under construction and will grow in the next few years when we use the mandate to, not least, drive sustainable development through investments in real estate as well as private equity,” says Pål Bergström, CEO of AP7, in the foreword to the report.
Integrating ESG into the Asset Management Team
In parallel with the increase of its balance sheet, AP7 has decided to adjust the relationship between sustainability analysis and asset management. Whereas before the teams operated separately, 2024 saw sustainability analysts move to within the asset management team.
“The fact that we are increasing our holdings within new asset classes places increased demands on our ability to analyze these from a sustainability perspective. In order to facilitate the work, during the year we have transferred the employees in our sustainability team to the asset management department, while at the same time we are adding additional cutting-edge expertise through new recruitments. Now all our management teams, with dedicated sustainability expertise, are working to develop climate goals and in 2025 we will have adopted goals for investments and active influence within all asset classes,” Bergström explains.
As a result of these changes, the entire ESG unit of AP7 moved to the asset management department. “As part of our strategy to fully integrate sustainability and active ownership in our investments, the ESG unit moved from the communications department to the asset management department in June 2024. Thus, sustainability is now more integrated with investment strategies than before. This approach allows sustainability to have a greater impact on capital allocation. As Head of ESG, I head the ESG unit within the asset management department. Our four sustainability analysts report to me and work closely together with all portfolio managers,” Sydstrand adds.
Green Bonds and Active Ownership Goals
Beyond AP7’s investments in climate transition, the update to the Climate action guide also discusses AP7’s investments in green bonds and active ownership. “AP7’s investments in green bonds amounted to SEK44.5 billion at the turn of the year 2024, corresponding to 39% of the AP7 Interest Fund. During the autumn, investments in green bonds were further expanded and in October 2024 they amounted to 43%,” AP7 explains.
The updated climate change plan also includes a number of timed targets for AP7’s active ownership and investments that AP7 considers priorities. According to the asset owner, priority companies are those that together make up 70% of the portfolio’s financed climate footprint, calculated on the portfolio companies’ emissions, scope 1 and scope 2.
According to the climate change guide, by 2025, all priority companies in AP7’s portfolio must be subject to enhanced active ownership in order to reach net zero emissions by 2050. Another one of the goals is that at least 50% of the prioritised companies in AP7’s portfolio must carry out credible restructuring work 2025, with the goal of reaching 100% by 2030.
Looking Forward to 2025
Going forward, AP7 does not intend to sit on its laurels and more active ownership targets will continue to be set across asset classes. “This year’s update only partially reflects the ongoing efforts to integrate climate considerations into our investments. All our portfolio management teams are now working on developing climate targets,” Sydstrand says.
By 2025, we aim to have established specific targets for investments and active engagement across all asset classes: equities, bonds, real estate, and private equity. Next year’s updated climate action plan will hopefully capture more of the significant changes currently underway at AP7,” Sydstrand concludes.
