AP4 Andersson: EU Directive for investors of carbon footprint?

The CEO of Swedish Pension Fund A4 Mats Andersson believes that it would be possible that EU countries will lead the carbon footprint reporting in the near future. He expects that there will be EU directive , at some point, for investors to report annually their carbon footprint. At the moment this carbon footprint is voluntarily among the institutional investors and there are initiatives like PRI´s Montreal pledge that is urging investors to report on it. The French Goverment maid an Act during the summer to make the carbon footprint reporting obligatory for institutional investors and pension funds.

– I think that Sweden will follow the French steps to make the reporting an obligatory element for institutional investors. And my guess is that this will happen at the end of this year. And later on there might also be this EU directive on this matter, Mr Andersson said before the PRI meeting in London yesterday.

If this kind of EU directive would come into force, it would mean that all the pension funds and Sovereign Wealth Funds have to report on the carbon footprint in their portfolios. This would also mean that companies in the portfolios are urged to act to report on their carbon emissions.

Business Finance

The awareness of carbon emissions risks is rising among investors – how to hedge climate change?

The awareness of carbon emissions risks is rising among institutional investors. The fact that UN Paris meeting in December will have impact on the thinking of trading and pricing on emissions will lead to different outcomes to different companies and industry sectors. Institutional investors are now thinking how to avoid climate change related risks in portfolios, but on the other hand also how to benefit from the right options. Investor point of view is how to avoid the risks related for example to the time horizon.

Investors see different cap and trade -models in different countries and different renewables programms. Taxation, trading methods and pricing are some of the core elements, but they vary widely. One of the largest cap and trade -areas is EU, and the impact of the new pricing will be seen in the future. The economic slowdown has curbed the emission pricing and at the moment the system is not awarding companies to swift to renewables.

There are two kind of risks for investors related to CO2 emissions: income statement risk and balance sheet risk. Currently there is no or let´s say low CO2 price for companies. In the near future the repricing of emissions and taxation will impact the company profit and loss statements. The second risk area is the so called “stranded assets”. This means that fossil fuels companies are valued on their reserves, but on the other hand the companies cannot monetize all the reserves in their balance sheet because of the global warming and temperature increase.

Low carbon indexes
to hedge climate change

Investos have different strategies to reduce their climate change related risks in portfolios. Exclusion, engagement, hedging or all of them together.
One of the new low carbon indexes is MSCI Europe Low Carbon Leaders, which has been developed by Amundi Asset Management, the Swedish Pension Fund AP4 and the French Pension Fund FRR together with MSCI.

This index was launched September last year and by summer it exceeded its benchmark MSCI Europe index by nearly 200 basis points. The idea is that the most polluting companies are divested and the rest of the companies are weight again so that the exposure of stranded assets will be minimized. At the same time with this index it is possible to reduce the carbon footrpint of the portfolio, which is one of the issues for investors at the moment. For example in France the institutional investors are obliged to publish their portfolio carbon footprint.

Part of this development, Amundi and AP4 are also founders of the Portfolio Decarbonization Coalition (together with United Nations Environment Programme and its Finance Initiative and CDP, Carbon Disclosure Project) which aims to convene investors to reduce their portfolio exposure to GHG emissions. The target of this initiative is 100 billion dollars by the end of this year.

“China International Capital Corporation is committed to promote the decarbonization of investment portfolios and the use of low carbon indexes, particularly in Asia and in China, “said Chairman Jin Liquin in press release related to the support to Decarbonization Coalition.

” Portfolio decarbonization, I know that a Portfolio Decarboniation Coalition has been put in place and announced at the Climate Summit in NYC and that after only a few months of existence it has already received a 45 billion dollars committments. French actors are part of this mobilization, said the French President Francois Hollande.

After the launch, the members in the Coalition have increased and include also for example the Church of Sweden, Local Goverment Super,Mirova and Robeco SAM.

Päivi Härkönen

Finance Research and Insights

The Swedish Pension Fund AP4 to focus on climate change

The leading Swedish Pension Fund AP4 is focusing on governance and climate change issues. In PUB+ interview the managing director Mats Andersson, also the Ambassador of UN Decarbonazation Coalition, says that they have done the portfolio decarbonazation over three years ago and  their target is that by 2015 they have all the equity assets as low carbon assets. Mr Andersson was speaking in EarthRate ESG discussion in Stockholm.

-This year we will analyse the Asian markets  and Japan. We have done the earlier
research related to US and European markets. This work has helped us to
minimize the carbon output by 50 per cent, he says.

– In Sweden our focus is on Governance and Climate Change. Abroad we will
focus on working together with other AP funds and other engagement
funds, especially in Japan, he says.

Andersson says that good governance is about diversity, owner-driven strategies and transparent policy.

The fund assets were 295 billion Swedish kronor and  the fund is also awarded by the IPE as the Best Public Penson Fund in 2014.  According to the company during the last 10 years the total return has been 7,6 per cent in average. Last year the total return was 15,7 per cent after the  costs and the fund made their record profit of 40 billion Swedish kronor.