Swedish buffer fund AP3 has set sustainability targets for the first time and plans to more than treble green bond holdings over the next three years.
The targets come after the fund signed the Paris Pledge for Action on 24 November before the UN climate change conference (COP21) in the French capital last month.
The targets are to be reached by 2018 and due to be monitored yearly.
The SEK304bn (€33bn) AP3 fund is aiming to halve the carbon footprint of its holdings in listed equities and credits, compared with that in 2014.
The fund is also calling for improvements in disclosure by companies, “urging” them to issue reports regularly on their carbon footprint by 2018 at the latest.
AP3 sold all its shares in coal mining companies in May last year to reduce the carbon footprint of its portfolio, despite its being “climate-neutral”.
It has specified that it will more than treble holdings in so-called green bonds by the end of 2018, from SEK4.5bn to SEK15bn, to help develop that market “in accordance with COP21”.
It also aims to double its strategic sustainability investments, including in water treatment, from SEK10bn to SEK20bn.
AP3 first invested in green bonds in 2007, according to the fund.
As at 30 June, nearly 40% of AP3’s investments were in fixed income, including index-linked bonds.
Green bond holdings of SEK15bn would represent 13% of this asset category.
The fund is also setting its sights on sustainability in real estate, saying it would work with Vasakronan, Scandinavia’s largest real estate company and in which AP3 has a 25% equity stake, to ensure it would “continue to lead the way in sustainability in the real estate sector in Sweden”.
Other real estate companies in which the fund is invested, such as Hemsö, Trophi and Regio, should also adopt ambitious sustainability policies as they mature, said AP3.
The announcement of its sustainability targets comes after Sweden’s buffer funds reached agreement on how they would report the carbon footprints of their investments.
The targets are the latest output of AP3’s focus on sustainability over the last 15 months or so, according to Mårten Lindeborg, AP3 deputy chief executive and CIO.
“First in order, in 2014, was to calculate the fund’s total carbon footprint – i.e. establish the current situation,” he told IPE.
“The result was satisfactory because the total CO2 footprint was more or less zero, as AP3’s listed equity holdings’ negative impact was neutralised by a positive contribution from AP3’s timberland.
“However, we want to improve because a more sustainable portfolio can improve both the return and the risk profile of the fund.
“Setting targets and working toward them will gradually achieve that objective.”
The targets could also influence other investors to be transparent about their sustainability strategy, he added.