Sweden’s AP4 is aiming to halve the carbon footprint of its investments by 2030 with a goal of net zero by 2040 at the latest, it announced today. Its targets are among the most ambitious set so far by public pension funds, which are reacting to policyholders’ demands for greater environmental sensitivity as well as investing in sustainable assets with potentially higher long-term returns than hydrocarbons-intensive sectors.
The public pension fund announced that it had slashed the carbon footprint of its listed equities in half since 2010. It achieved a return of 9.6% in 2020 with active management achieving a return contribution of 2.4% as it took advantage of the collapse in prices of corporate bonds and equities in March, snapping up assets at cheap prices and witnessing values grow as markets started their recovery.
At the same time, AP4 was able to cut the carbon footprint of its equities portfolio by 15%. The fund divested from companies whose plans and targets were deemed not to be in line with the Paris Agreement.
Exclusions are a popular and instant way of reducing exposure to companies whose activities contribute to climate change. Last month, Dutch public pension fund manager APG sold its stake in the Korean Electricity Power Company (KEPCO) after the company went ahead with the construction of new coal-fired power plants in Indonesia and Vietnam, despite protestations ahead of the decision. The fund’s sustainability specialist Yoo-Kyung Park said: “The decision on the new coal-fired power plants was a litmus test for the company’s commitment to the Paris Agreement and join global efforts to combat climate change. The construction of these coal-fired power plants deepens the climate crisis and worsens the company's profitability in the long run.”
In 2020, APG sold eight companies with more than 90 gigawatts of coal-fired capacity due to plans to expand coal-fired power stations. APG’s largest client, civil service pension fund ABP, aims for a climate neutral portfolio by 2050, in line with the Paris climate agreement.
Over the pond in Canada, the Paris Agreement is also guiding investment decisions with the “Maple 8” funds representing C$1.6 trillion of assets issuing a joint statement in November committing to environment goals, including implementing common standards and disclosures to assess investments. All the funds have seen increasing focus on renewables as they drive towards greater environmental sustainability.
Following this agreement, in January the Ontario Teachers’ Pension Plan Board (OTPP) announced its commitment to achieve net-zero greenhouse gas emissions by 2050. Its strategy is not just focused on exclusions, but also impact investment with a rise in capital allocation to climate-friendly investments and solutions and working with portfolio companies to achieve net zero emissions by 2050.