Swedish national pension fund AP4 has unveiled a 2040 target for achieving net-zero carbon emissions associated with its investments, five years earlier than the country’s overall goal for carbon-neutrality.
The SEK449.4bn (€45bn) fund, which is one of the main four buffers in the pay-as-you-go part of the state pension system, made the announcement in its 2020 results statement.
Niklas Ekvall, AP4’s chief executive officer, said: “Our target is to once again halve the carbon footprint from the current level by 2030 with a view to have net-zero emissions by 2040 at the latest.
“Our historical reduction of the carbon footprint and our targets are more ambitious than those set out in the Paris Agreement,” he said in the annual report.
Ekvall said the carbon footprint of AP4’s equities portfolio had decreased by a further 15% during 2020 and was now less than half the level for a broad global equities index, and that between 2010 and now, carbon emissions related to the whole portfolio had been reduced by 50%.
Over the course of last year, he said the fund had made progress in its climate and environmental work.
“Among other things we have built a new fundamental, thematic global equities management, and we have started to use new, forward-looking data to assess how portfolio companies are acting in relation to the Paris Agreement,” he said.
Nine energy stocks left
AP4 had carried out an analysis of the climate transition and its impact on fossil fuel-based companies, he said, and consequently divested firms whose plans and targets were not in line with the Paris Agreement.
Ekvall told IPE the pension fund divested from quite a number of energy companies in 2020, including big firms such as Exxon, Chevron and ConocoPhillips, and now had just nine energy stocks left, compared to the 55 such firms in the world stocks index.
He declined to give further details or figures about the divestments, but said that AP4 had also added a number of companies whose businesses were orientated towards the green transition.
Although AP4 has previously divested companies involved in coal and oil sands, the pension fund has stopped short of overall fossil fuel bans, such as that announced by AP1 earlier this year.
Ekvall said the fund had decided on this strategy for a number of reasons.
“One is that we believe that some fossil-fuel companies will be needed in the future too during the transition, and the other reason is that some companies are working quite actively within renewable energy, and doing quite a lot to support the transition – and we want to support that,” he said.
Ekvall said AP4 wanted to engage with energy companies to support them in the transition, he said, adding that now the pension fund had so few of them, this was easier to do.
“We think engagement is a more constructive long-term approach,” he said.
9.6% 2020 return
AP4 said in the statement that in a year dominated by the pandemic and exceptional market movements, it had made a 9.6% return on its investments after costs, with “successful asset management” having contributed 2.4 percentage points to the return.
Fund capital grew to SEK449.4bn by the end of 2020, from SEK418.0bn a year earlier, according to the annual report.
Swedish shares were the strongest performers for AP4 last year, with the asset class returning 30.2%, followed by global equities with a 13.5% return.
Real assets produced a 5.0% return during the yearend global bonds ended the year with a 4.0% return.