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IPE special report May 2018

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AP2 divests 10 more power stocks on climate grounds

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Sweden’s second national pensions buffer fund, AP2, has divested 10 more of the stocks it holds on the grounds of financial climate risk, bringing the total number of holdings sold off for this reason to 76, it said, on releasing a publication outlining its approach to the transition towards a low-carbon economy.

In the report, the SEK300bn (€30.6bn) fund says a long-term, responsible approach to the environment, ethics and corporate management increases the value of the companies and that pushing forward with sustainability issues will have a positive impact on its returns.

AP2 said it aimed to develop its portfolio in line with the 2°C target of the Paris Agreement because climate change was likely to have a big effect on long-term returns.

It said it would achieve this by integrating climate analysis into its investment process.

Last December, 195 states signed the Paris Agreement, which set out that the global rise in temperature should be kept well below 2°C, and that countries should try to limit the increase to 1.5°C. 

AP2 said this pact had bolstered its view that society was now at the beginning of a transition to a low-carbon economy – and that this made it more and more important that climate factors were embedded into risk assessments, as well as investment decisions.

Eva Halvarsson, chief executive at AP2, said: “To be able to assess our portfolio, we need to have an idea of what the target looks like, as well as metrics that can be used for assessment.”

She said this was exactly why the fund was constantly working on these matters, and that the publication was meant to give insight into AP2’s work in this area.

The latest 10 stocks to be divested are in the power utility sector, and the decision to sell them off was made as a result of a follow-up analysis of financial climate risks in this industry.

The original work was conducted in 2015 and pinpointed 28 firms for divestment that derived a significant portion of profits mainly from coal-fired electricity generation.

The Swedish pension fund said climate issues – and climate change in particular – presented huge risks, as well as big opportunities, for a long-term investor such as AP2.

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