Sweden’s biggest national pension fund has dramatically stepped up its blacklisting of companies not doing enough for the health of the climate, ruling out 35 more firms for potential investment and announcing a new approach.
AP7, which runs the default option in the first-pillar premium pension system, announced last week that, having used the Paris Agreement as a basis for exclusions since 2017, it was now taking another step and excluding “companies that have a high risk of failing in the climate transition”.
Johan Florén, head of communications at the SEK1.4trn (€91bn) pension fund, said: “We need more tools to manage risks that are becoming increasingly complex and unpredictable. In addition, we want to be able to allocate more resources to the opportunities that exist.”
The Stockholm-based fund said that after several years of increased sustainability ambitions in politics, business, and the financial sector, after the Paris Agreement in 2016, the world had now “become more conflict-ridden and unpredictable”, which brought new sustainability challenges for investments and ownership engagement.
“Therefore, AP7 is expanding the basis for excluding companies with particularly high and difficult-to-assess sustainability risks,” it said, adding that a stricter selection for firms with significant climate impact would mean more being excluded and resources therefore concentrated on fewer companies with greater transition potential.
“This improves the conditions for a more active management model in the internal transition portfolio developed during the year,” it said.
AP7 also published the latest of its twice-yearly lists of newly-excluded companies, which listed 35 stocks – far more than the average of around six announced each half year since the end of 2022.
Thirty one of the 35 additions to its overall blacklist – which now carries the names of 110 listed companies – have been excluded under AP7’s environment/climate criterion, and include major stocks such as Brazil’s Petrobras, Japan’s Sumitomo Corporation and US oil and gas company Chevron.
Asked whether the new approach would lead to a more concentrated equities portfolio for AP7, Florén told IPE the transition portfolio would be more concentrated, focusing on the companies with the best transition potential, but that the pension fund’s overall strategy would still be based on diversification and low costs with an allocation close to index.
“This internally managed climate transition portfolio is currently in a build-up phase. It is an actively managed mandate that is expected to account for up to 10% of the equity fund’s assets under management over time,” he said.
The internally managed transition mandate is in addition to the externally managed climate transition mandate AP7 awarded LGIM in 2023.
Overall, Florén said, AP7 – whose global equity portfolio currently consists of around 2,000 companies — would become more diversified in the coming years due to the continued expansion into alternative investments, including private equity and real estate.
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