AP3 is one of five so-called buffer funds within the Swedish national pension system. Together, the buffer funds hold around 15% of total pension system assets. AP3 is tasked by the Swedish Parliament with generating maximum possible benefit for the income pension system by managing our fund capital so as to deliver strong investment returns at a low level of risk. AP3 has two roles in the pension system:
- serve as a buffer when inflows and outflows cause imbalance in the system, and
- promote the overall financial stability of the system.
The Fund is more independent than most government agencies because the Board, appointed by the Government, has sole responsibility for the operations of the Fund and because Sweden’s national pension funds are regulated solely by legislation and not by government directives. The Ministry of Finance reviews the national pension funds’ performance on an annual basis.
AP3 manages a diversified global portfolio of listed equities, fixed income assets and alternative investments. Alternative investments consist of private equity, real estate, timberland, infrastructure assets and new strategies and cosnsttute around 20% ot the total portfolio.
The value of AP3's portfolio stood at SEK 324 bn on 31 December 2016.
AP3 bases its values on international conventions signed by the Swedish government in the field of the environment, human rights, labour protection, anti-corruption and inhumane weapons. Our values also include support provided by Sweden to initiatives such as the OECD's Principles of Corporate Governance and Guidelines for Multinational Enterprises, the UN Global Compact, and Sweden's stance on issues of international law. The Pension Funds Act requires the AP funds to take due account of environmental,social corporate governance issues without compromising the ultimate objective of achieving high returns at a low level of risk.
AP3 strives to ensure that investee companies identify and manage environmental, ethical and social risks in a way that creates value for shareholders. Enterprises should conduct risk analysis and have governance and management systems and external reporting procedures in place. They should also have codes of conduct and policies that demonstrate their approach to ESG both internally and externally with regard to stakeholders, including business partners and suppliers.
Please note that AP3 prefrers to use the, as we see it, the more comprehensive term sustainability and not the acronym ESG. ESG is of course a vital and constitues the mayor part of sustainability but in our view it does not fully mirror the processes and work that we see define responsible and sustainable investing and investment management.
AP3 believes that well managed companies offer investors superior returns and lower risk over time. Sustainability gives rise to risks and opportunities for AP3, just as it does for all companies. This explains why the Fund has incorporated sustainability into its investment strategy for creating long-term value on behalf of the Swedish state pension system. AP3 has an holistic view on sustainability, meaning that it comprises the whole organisation and the whole portfolio, all asset classes. The responsible investment strategy has to be long term cost efficient and follow the mission of the fund and the strategy the fund has chosen to achieve its target return. It should consider the ownership and exposures of the fund. The asset management department is responsible for sustainability and all asset management mandates include a sustainability perspective.It is a matter of risk assessement both on the downside and the upside (opportunities). On a daily basis a team of two people are reponsible to see to that sustaniability process continue to develop, both from a corporate governance angle as from an integration perspective.
Within the farmework of the mission of the Fund our ambition is to create a process that is
- Formalised with an overall process and priciples how AP3 work with sustainability
- Integrated with tools and means for the managers to fulfill what thay are asked to do, sustainability is part of the investment discussions and decisions
- Proactive, a dedicated group is repsonsible for the development of sustainability, a review is cararied out twice a year to assess the work done and mark where there is room for change and or improvement.
- Reactive, how the Fund should act in connection with investee company incidents etc.
The overall strategy is
- Risk diversification - a diversified portfolio
- Risk limitation - engagement
- Risk elimination - exclusions
- Positive selection
- Active ownership
- Negative selection
In december 2015 AP3 announced four sustainability targets:
- The carbon footprint of our holdings in listed equities and credits will be halved by 2018 compared to 2014. AP3 also urges all companies to issue reports regularly on their carbon footprint by 2018 at the latest.
- AP3 intends to help develop the market for green bonds in accordance with COP21. We will more than triple our holdings of green bonds from SEK 4.5 billion to SEK 15 billion by the end of 2018.
- AP3 will double its strategic sustainability investments, for example in water treatment, from SEK 10 billion to SEK 20 billion, by the end of 2018.
- AP3 will work to ensure that Vasakronan, Scandinavia's largest real estate company (in which AP3 owns a 25% equity stake), will continue to lead the way in sustainability in the real estate sector in Sweden.The Fund will also make it a priority to ensure that its other real estate investees (Hemsö, Trophi, Regio et al) adopt ambitious sustainability policies as they mature.
Please note, our website is stil in work in process, for that reason some of the references will be to the website and not the specific document as the URL could have changed.