The board’s oversight of climate-related risks and opportunities
AP2 is an independent government authority. According to the act that governs the Swedish AP funds’ goals and the overarching frameworks under which they operate are set out by the board in an annual operational plan. The operational plan also includes AP2’s corporate governance policy, which sets out clearly how the fund is to contribute, within the scope of its overall mission, to the favorable development in terms of ethics, the environment and corporate governance of the companies in which it invests. The board decides on the operational plan each year. The Swedish Government appoints the fund’s board members.
The board establishes the strategic portfolio at least once per year as part of the fund’s operational plan. AP2 uses a long-term perspective of 30 years in its strategic allocation. The board is informed about and discusses environmental, social and corporate governance (ESG) issues at each meeting.
AP2 has been working to identify companies with climate-related financial risks since 2013. In October 2014, the first analysis that concerned fossil energy companies was presented to the board, which decided at that time to divest from companies on the basis of criteria set by AP2. The board made a corresponding decision that applied to utility companies in 2015. AP2 follows up these decisions each year using an analysis of whether there are further companies to divest from or companies that are to be reinvested in as they are no longer regarded as having a significant climate-related financial risk. At that time, the board is also provided with an analysis of return pertaining to the divestments. One condition in the AP Funds’ Act is that the consideration given to ethical and the environment concerns may be such that the overall goal of providing a high return at as low a risk as possible to the pension system.
The board decides on all index changes. The data put together by AP2 prior to a decision concerning potential index changes taking place contains an ESG analysis that includes an analysis of how the change will affect the carbon footprint. AP2’s overarching ambition in terms of climate is for the portfolio to be compliant with the two-degree target.