Sweden’s AP2 has reduced the carbon footprint of its investments by a third between January and June after overhauling its benchmarks, according to its interim report.
Releasing financial results for the first half of this year, the Gothenburg-based pension fund said it made an overall 2.9% return on investments in the period including costs, underperforming its benchmark by 0.1 percentage points.
Eva Halvarsson, chief executive of the state pension buffer fund, said: “During the first quarter, the fund implemented extensive changes to its management of foreign equities by introducing new benchmarks for both emerging markets and developed markets.”
With the new indices, she said the fund was also getting exposure to a number of sustainability factors, which – apart from improving the portfolio’s sustainability characteristics – also improved the expected return and risk.
“Among other things, the new indices entail a considerably lower carbon footprint,” Halvarsson said.
The fund said in its report that in relation to the market value of its holdings, the carbon dioxide intensity for its total equity portfolio would be 18 tonnes of carbon dioxide equivalent per million krona as of 30 June, compared with 28 for 2017.
The absolute carbon footprint for the portfolio as of 30 June was 1.9m tonnes of carbon dioxide, compared with 2.6m for 2017.
AP2’s new indices combined most of the alternative indices it used before to gain exposure in individual sub-portfolios, turning these into one multiple factor index for developed countries and one for emerging countries.
The fund said the investment return for the first half exceeded its long-term return assumption of 4.5% a year.
Investments were helped to some extent by a weaker Swedish krona, with the currency hit by uncertainty around the central bank’s monetary policy.
“The weakening of the krona during the first half of the year has had a positive impact on the return on foreign assets but this has partly been counteracted by the fund’s hedging policy and tactical positions,” AP2 said.
Foreign government bonds, for example, made a 7.4% return in absolute terms in the first half, whereas Swedish government bonds returned just 0.9%.
In the first half, the pension fund paid out SEK3.3bn (€314m) to the national pension system, lower than the SEK3.7bn it paid out in the same period last year.
AP2’s total assets increased to SEK352.4bn by the end of June, up from SEK345.9bn at the end of December.