Sweden’s second-biggest pension fund said capital owners should stick with high-emitting stocks to help them adapt to the low-carbon economy, and that transition companies will be one of its top sustainability priorities in the next few years.

In an opinion piece in Swedish daily DN, AP7’s chief executive officer Richard Gröttheim and Johan Florén, the state pension fund’s head of ESG and communications, wrote: “Owners with large shareholdings must help companies with high emissions – particularly in the energy sector and industries such as steel, cement, and transport – to adapt their operations”.

The pair said it was a concern that so many opinion shapers still clung to the notion that sustainable investors could contribute best by selling assets in such companies.

“It would be devastating if that approach gained further traction,” they said.

“The companies with the greatest need to change would be drained of sustainable investors, and the internal pressure to bring about change would stop,” wrote Gröttheim and Florén.

The international capital market was dominated by traditional asset management without significant climate ambitions, they said.

“What is lacking are sustainable investors who are prepared to roll up their sleeves and get involved as owners,” said the two leaders of the SEK855bn (€81.5bn) pension fund, which operates the default option in Sweden’s defined-contribution premium pension system.

Gröttheim and Florén said owners of companies deeply rooted in the fossil economy had to make sure the firms adapted to a low-carbon future as soon as possible.

“The solution is not to wash their hands of the problem by selling their holdings to someone else,” they said.

Referring to changes to AP7’s mandate currently in the legislative process in Sweden, Gröttheim and Florén wrote that next year, the pension fund would hopefully have a new, clearer sustainability goal in place.

“Assets will be managed in an exemplary manner, and special emphasis will be placed on promoting sustainable development,” they said.

“Our conclusion regarding the climate is that we should not only continue to invest in transition companies – we also need to increase our efforts in terms of both holdings and corporate governance,” the pair wrote adding that this would be a top priority on the pension fund’s sustainability agenda for several years to come.

“Corporate governance and green investment volumes are already increasing,” they said, adding that the fund would soon see the first earmarked investment with an explicit focus on transition.

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