Sustainability is an integral part of AP3’s mission to create long-term value and the fund works actively to address sustainability issues and opportunities across its entire portfolio. It is important that managers selected are aligned with AP3 in their views on ESG/Sustainability and that there is a mutual understanding of what is expected and what to expect. As the work regarding ESG is an ongoing process it is also important to see what could and should be done over time.
ESG and potential ESG issues are on the list of questions to be discussed and answered when selecting and appointing managers, Are there potential risks, (how are they handled, before and now), Trackrecord. Are there policies in place and more important are they followed. How are they monitored?
The manager's view on relevant and material environmental, social and goverance issues. Resources and responsibility in the organisation. Is there a dedicated team, what is the general knowledge and handling of ESG in the organinsation.
ESG/sustainability is a given part of the DD process, where we want to get as good insight and understanding as possible about the manager's views and actions on sustainability issues. The outcome from the DD is then part of the selection/appointment and monitoring is done via reporting and follow ups in different ways eg. meetings and conference calls.
A section on sustainability is included in RFIs, RFPs and in the Due Diligence process. The questions is about for example:
· Investment policy that includes sustainability issues. ESG policy, ESG and investment beliefs?
· RI policy and content?
· The management of sustainability risks and opportunities, factors/KPIs?
· The integration of sustainability in investment processes and decisions,knowledge and experience?
· Resposibility within the organisation for sustainability?
· Company engagement and dialogue?
· If the manager is a signatory of UNPRI and/or other initiatives/codes etc.?
· Implemenation of UNPRI six principles?
Sustainability issues are thus addressed in the Manager selection and appointment processes, in the agreements signed (IMAs and Side Letters), in the monitoring and reporting required from the managers.
Sustainability reporting is included in the Reporting requirements in the IMA/Side letter. For segregated accounts there are questions about the possibility to exclude stocks added. AP3 use customized index benchmark that are reviewed 4 times a year. Before each review the conventional index for the mandate are screeend and decisons taken about what companies to have exposure to / not to have exposure to.
In late 2017 a survey was sent out to all external equity managers with questions on their work with ESG (policies, team, time etc), if they are signatories of PRI and /or other organisations, if they support the París Agreement, if they measure the CO2 footprint, how they work with the UN SDGs, which ones are most relevant/material, and how /if they measure impact. The major part of the managers took the suvery.The results have been discussed during the year with all our external managers. Those discussions have also led to futher sustainability related discussions and learning regarding eg corporate governace and climate change implications. How these issued can be approached and integrated in the asset management.
As mentioned, AP3 have recurring meetings/conference calls with our external managers to discuss different ESG issues, and how the are handled. These meeetings have a dual function, they are part of the monitoring/follow up but they also function as a means to exchange and share knowledge and experience from the development.
AP3 vote all stocks itself so it is important that managers can verify that they don´t use the AP3 voting rights.
For Private Equity, the process is similar and developing as there is a potential to develop/elaborate the processes here from DD to reporting (increased in line with the DD) and monitoring as an increasing number of GPs are including sustainability in their strategies and management. During the year the emphasis on ESG in PE has increased.
Property, in the directly owned real estate companies AP3 is represented on the Board and sustainability issues should be addressed, decided and followed up. We also have meetings with the property companies and the staff responsible for sustainability to discuss, learn and understand how the company handles sustainability issues, such as energy efficiency, building materials, suppliers, maintenance etc.. The information is used to spread best practise to the other real estate companies AP3 is invested in. GRESB reporting is encouraged and asked for.
Infrastructure, investment in Infrastructure follow the same processes as the above. Infrastructure itself may be part of the an ESG issue or of the solution thus the selection/appointment/monitoring processes are very important.
Forestry, investment in Timberand follow the same processes as the above. AP3 timberland holdings are certified by the Forest Stewardship Council (FSC).