This report shows public data only. Is this your organisation? If so, login here to view your full report.

AP2

PRI reporting framework 2018

Export Public Responses
Pdf-img

You are in Strategy and Governance » ESG issues in asset allocation

ESG issues in asset allocation

SG 13. ESG issues in strategic asset allocation

New selection options have been added to this indicator. Please review your prefilled responses carefully.

13.1. Indicate if your organisation executes scenario analysis and/or modelling in which the risk profile of future ESG trends at portfolio level is calculated.

13.3. Additional information. [OPTIONAL]


SG 14. Long term investment risks and opportunity

14.1. Describe the process used to identify short, medium and long-term risks and opportunities that could have a material impact on your organisation and its activities.

AP2’s strategic portfolio is produced with the support of an in-house developed Asset Liability Model (ALM), which simulates the development in the pension system and in the financial markets. The model makes it possible for the Fund to calculate how different asset compositions can be expected to influence future pensions. This also enables the model for the Fund to select the strategic portfolio that can be expected to provide the best target fulfilment for the 30-year time frame that the Fund is based on, i.e. to minimise the negative effects of the so called brake.

An important factor governing the composition of the strategic portfolio is the fact that the AP Funds jointly account for approximately 15 per cent of the national pension system’s combined assets. The largest part (85 per cent) derives from the contribution assets, which can best be compared to index-linked bonds. This means that the AP funds can and should accept a higher degree of risk in their portfolios. The pension system in its entirety has a very limited exposure to risk in the financial markets.

14.1 CC. Describe the processes used to determine which climate-related short, medium and long-term risks and opportunities could have a material impact on your organisation and its activities.

AP2’s basic premise is primarily a very long-term perspective, more specifically 30 years, which is consistent with the fund’s mission and role in the national pension system. The long-term perspective is reflected in the choice of strategic portfolio, which encompasses both the long-term distribution of the capital across various broad asset classes and the strategies that determine the distribution between individual securities within each asset class. The strategic portfolio and its return shall provide as great a benefit to the pension system as possible – a goal that the fund may not disregard.

AP2 considers climate-related risk to be a long-term systematic risk in the fund’s portfolio and thus to the pension system. This applies not just to individual sectors and companies, but also to broad asset classes such as equities and bonds through their potential impact on the global economy. In the short term, the long-term transition, which is in progress, entails investment opportunities in the form of assets that are deemed to benefit from the transition, e.g. companies that are involved in renewable energy, at the same time as assets that are not deemed to be sustainable constitute a risk.

14.2. Some investment risks and opportunities arise as a result of long term trends. Indicate which of the following you act on.

14.2a cc. Please describe how you define “short”, “medium” and “long term”, and describe your material climate-related issues over these time horizons.

Definition
Description of material climate-related issues
Short term
          Not determined, timescale will probably be dependent on asset class/sector/geograhy.
        
          Please see AP2's TCFD report p.9-10 http://www.ap2.se/globalassets/hallbarhet-agarstyrning/klimat/tcfd/ap2s-climate-report-based-on-tcfds-recommendations.pdf
        
Medium term
          Not determined, timescale will probably be dependent on asset class/sector/geograhy.
        
          Please see AP2's TCFD report p.9-10 http://www.ap2.se/globalassets/hallbarhet-agarstyrning/klimat/tcfd/ap2s-climate-report-based-on-tcfds-recommendations.pdf
        
Long term
          Not determined, timescale will probably be dependent on asset class/sector/geograhy.
        
          Please see AP2's TCFD report p.9-10 http://www.ap2.se/globalassets/hallbarhet-agarstyrning/klimat/tcfd/ap2s-climate-report-based-on-tcfds-recommendations.pdf
        

14.3. Indicate which of the following activities you have undertaken to respond to climate change risk and opportunity

14.4. Indicate which of the following tools you use to manage emissions risks and opportunities

14.4a CC. Please provide further details on these key metric(s) used to assess climate related risks and opportunities.

Metric Type
Coverage
Purpose
Metric Unit
Metric Methodology
Metric Trend
Limitations / Weaknesses
Climate-related targets
          Majority
        
          Transparency
        
          
        
          A portfolio in line with the two degree target
        
          
        
          
        
Weighted average carbon intensity
          Majority
        
          Transparency
        
          tCO2e/SEK million
        
          http://www.ap2.se/globalassets/hallbarhet-agarstyrning/koldioxidavtryck/formulas-for-carbon-footprint-measures-180208.pdf
        
          
        
          http://www.ap2.se/globalassets/hallbarhet-agarstyrning/koldioxidavtryck/fact-sheet_ap-funds-co-ordination-of-carbon-footprint-_nov-2015.pdf
        
Carbon footprint (scope 1 and 2)
          Majority
        
          Transparency
        
          tCO2e
        
          http://www.ap2.se/globalassets/hallbarhet-agarstyrning/koldioxidavtryck/formulas-for-carbon-footprint-measures-180208.pdf
        
          Decreased
        
          http://www.ap2.se/globalassets/hallbarhet-agarstyrning/koldioxidavtryck/fact-sheet_ap-funds-co-ordination-of-carbon-footprint-_nov-2015.pdf
        
Portfolio carbon footprint
          Majority
        
          Transparency
        
          tCO2e/SEK million
        
          http://www.ap2.se/globalassets/hallbarhet-agarstyrning/koldioxidavtryck/formulas-for-carbon-footprint-measures-180208.pdf
        
          Decreased
        
          http://www.ap2.se/globalassets/hallbarhet-agarstyrning/koldioxidavtryck/fact-sheet_ap-funds-co-ordination-of-carbon-footprint-_nov-2015.pdf
        
Total carbon emissions
          Majority
        
          Transparency
        
          tCO2e
        
          http://www.ap2.se/globalassets/hallbarhet-agarstyrning/koldioxidavtryck/formulas-for-carbon-footprint-measures-180208.pdf
        
          Decreased
        
          http://www.ap2.se/globalassets/hallbarhet-agarstyrning/koldioxidavtryck/fact-sheet_ap-funds-co-ordination-of-carbon-footprint-_nov-2015.pdf
        
Carbon intensity
          Majority
        
          Transparency
        
          tCO2e/SEK million
        
          http://www.ap2.se/globalassets/hallbarhet-agarstyrning/koldioxidavtryck/formulas-for-carbon-footprint-measures-180208.pdf
        
          Decreased
        
          http://www.ap2.se/globalassets/hallbarhet-agarstyrning/koldioxidavtryck/fact-sheet_ap-funds-co-ordination-of-carbon-footprint-_nov-2015.pdf
        
Exposure to carbon-related assets
          
        
          
        
          
        
          
        
          
        
          
        

14.4b CC. Please describe in further detail your key targets.

Target type
Time Frame
Base Year
KPI
Target Methodology
Limitations / Weaknesses
Attachments
          
        
          
        
          
        
          
        
          
        
          
        
          
        
          
        
          
        
          
        

14.5. If you selected disclosure on emissions risks, list any specific climate related disclosure tools or frameworks that you used.

AP2 has used TCFD's framework

http://www.ap2.se/en/sustainability-and-corporate-governance/climate/ap2s-approach-to-the-transition-towards-a-low-carbon-economy/ 

14.6. Additional information [Optional]

AP2 has performed financial climat risk anlysis of fossil energy and utlity companies.

http://www.ap2.se/en/Financial-information/Press-releases/2014/second-ap-fund-to-divest-holdings-in-a-number-/

http://www.ap2.se/en/Financial-information/Press-releases/2015/the-second-ap-fund-continues-to-assess-the-financial-impact-of-climate-risks-and-will-divest-from-28-power-utilities/

AP2's approach to the transition towards a low-carbon economy

http://www.ap2.se/globalassets/hallbarhet-agarstyrning/klimat/klimatstrategi-2016_gb_161114.pdf 

AP2's TCFD report

http://www.ap2.se/en/sustainability-and-corporate-governance/climate/ap2s-approach-to-the-transition-towards-a-low-carbon-economy/ 

14.7 CC. Describe your risk management processes for identifying, assessing, and managing climate-related risks.

Please describe

At present, climate-related risks are not integrated into the organisation’s overall risk management process. In autumn 2017, a process of investigating whether sustainability should become a separate risk area was started.
 

14.8 CC. Describe your processes for prioritising climate-related risks.

The process AP2 currently uses to identify and assess climaterelated risks begins with an analysis of how these risks are priced in the market. Because the fund realised that it was likely that more powerful policy measures would be introduced and that the price of renewable energy is becoming coming increasingly into parity with that of fossil energy, the fund made the assessment that fossil energy companies and utility companies were sectors with the highest climate-related financial risk

14.9 CC. Do you conduct engagement activity with investee companies to encourage better disclosure and practices around climate-related risks?

Please describe

In recent years, AP2 has, together with other investors, put forward a number of shareholder proposals concerning climate change to several companies within the fossil fuel industry (BP, Shell, Statoil) and the mining sector (Glencore, Rio Tinto, Anglo American). In addition to its own shareholder proposals, the fund also uses its voting rights to support other investors’ proposals concerning climate change. In recent years, the fund has noted that many companies’ boards are committing to improving their climate-related reporting in terms of both emissions and evaluation of the company’s projects/activities pertaining to climate scenarios. AP2 is an active member of the PRI (Principles for Responsible Investment) and the IIGCC (Institutional Investors Group on Climate Change), both of which work a great deal with corporate engagement. A major international corporate engagement initiative, Climate Action 100+, was launched in December 2017. This is a five-year global initiative involving the 100 (+50) companies that have the highest carbon dioxide emissions. AP2 is responsible, together with one other investor, for one of these corporate engagement programmes. The goal of these programmes is for the companies to reduce their emissions, improve their climate-related disclosure (in accordance with the TCFD) and for the companies’ boards to have clear accountability and oversight of climate-related matters. AP2’s engagement with companies takes place at various levels, depending on the aim. Major initiatives are initiated with a letter to the chair of the board and CEO, but the process then continues with people who work directly with the pertinent issues. Using voting rights at annual general meetings (AGMs) is one way to communicate with a company. In 2017, the fund voted at 794 foreign AGMs (769 companies) in 29 countries. At these, 37 of a total of 424 shareholder proposals were related to climate change or renewable energy.
 

14.10 CC. Describe how you use data from climate-related disclosures.

AP2 has used the metrics and indicators that it has access to via MSCI ESG Manager. The risks and opportunities that the TCFD list in its recommendations are described in Tables 1 and 2, along with the financial impact these may have and the possible financial impact on AP2. AP2 has chosen a number of metrics/indicators from MSCI ESG that reflect these risks and opportunities.


SG 15. Allocation of assets to environmental and social themed areas

New selection options have been added to this indicator. Please review your prefilled responses carefully.

15.1. Indicate if your organisation allocates assets to, or manages, funds based on specific environmental and social themed areas.

15.2. Indicate the percentage of your total AUM invested in environmental and social themed areas.

10 %

15.3. Specify which thematic area(s) you invest in, indicate the percentage of your AUM in the particular asset class and provide a brief description.

Area

Asset class invested

2 % of AUM
2 % of AUM

Brief description and measures of investment

AP2 invest in Green and Social Bonds and within Private Equity investments are made in cleantech, renewable energy and climate solutions. Part of AP2 listed equities has a sustainabiltiy strategy.

Asset class invested

5 % of AUM

Brief description and measures of investment

AP2 has investments totalling SEK 19 billion in Vasakronan, Cityhold Office Partnership, Castellum, Kungsleden, Fabege and Wihlborgs Fastigheter, all of which have been awarded Green Stars by the Global Real Estate Benchmark (GRESB).

Asset class invested

1 % of AUM

Brief description and measures of investment

AP2's holdings in forest real-estate shall be managed in compliance with the Programme for the Endorsement of Forest Certification (PEFC) and/or the Forest Management Certification awarded by the Forest Stewardship Council (FSC).


Top