Investors to take actions on climate risk -NBIM excludes 52 coal companies

Stranded assets and climate change risks have become reality in the financial markets. During last week the world largest pension fund, the Norway Pension Fund, NBIM, said that they have excluded 52 coal companies from their portfolio and the pension fund says that further divestments will follow during this year.

According to the Pension Fund this exclusion does not include for example the green bonds if the company has issued such an instrument to finance environmental projects and is being verified by a third partner.

Also in France, institutional investors are to disclose their climate impact and carbon risk exposure. But also the Bank of China and the Bank of England have been rising the awareness of the climate-related risks to the financial sectors.

For long-term passive investors, climate change poses a financial risk which is not priced in the markets. According to study “Hedging Climate Risk” by Mats Andersson (CEO, AP4), Fredrick Samama (Deputy global head of institutional clients at Amundi Asset Management) and Patrick Bolton (Professor, Columbia University, New York) hedging climate change is a possibility to maximize long-term returns while limiting political and timing risks. The writers argue that investor holding a decarbonized index is hedged against the timing risk of climate mitigation policies because the decarbonized indexes are structured to maintain a low track error to the benchmark index.

What happens then when company is disclosing changes in carbon footprint? According to writers inclusion in a decarbonized index should have a positive effect in the company valuation and vice versa. And companies, that are excluded, could more easily determine their carbon footprint ranking in their industry sector and how much carbon footprint reduction it would take for their stock to be included again in the index.

According to the study, in order to foster the engagement of financial markets with climate change, it is advisable to appeal to investors´rationality and self-interest.

– Any rational investor with a long-term perspective, should be concerned about the absence of a market for carbon and the potential market failures that could result from this incompleteness, they say.



Business Finance

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 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.