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Swedfund International AB

PRI reporting framework 2019

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

ESG issues in asset allocation

SG 13. ESG issues in strategic asset allocation

13.1. Indicate whether the organisation undertakes scenario analysis and/or modelling and provide a description of the scenario analysis (by asset class, sector, strategic asset allocation, etc.).

Describe Swedfund has conducted an analysis of how climate and environmental risks impact Swedfund’s investments and, in turn, how they can impact Swedfund’s financial position. The analysis summarises the key environmental risks in the investment portfolio and how Swedfund works to manage and mitigate them.

13.2. Indicate if your organisation considers ESG issues in strategic asset allocation and/or allocation of assets between sectors or geographic markets.

We do the following

13.3. Additional information. [OPTIONAL]


SG 13 CC.

13.4 CC. Describe how the organisation is using scenario analysis to manage climate-related risks and opportunities, including how the analysis has been interpreted, the results and any future plans.

specify

          Climate report to owners. Further details see below.
        

Describe

During the reporting year Swedfund produced a Climate report to assess climate related risks and opportunities. The report is a requirement from our owners, and is a part of a long-term strategy to monitor and proactively adress climate related risks and opportunities. The analysis in the report analyses Swedfund’s risk profile from a "top-down" and "bottom-up" approach. "Top-down" analyses and categorises the external climate risks the portfolio is exposed to. "Bottom-up" includes Swedfund’s investment process, i.e. the identification and management of environmental and climate-related risks in the portfolio, as well as CO2e emissions from investments. The reasoning and analysis in the report stems from theories around scenario pathways, as well as the rational for future direction. A formalised scenario analysis accroding to a standardised methodology is however not applied in the report. 

13.5 CC. Indicate who uses this analysis.

13.6 CC. Indicate whether the organisation has evaluated the impacts of climate-related risk, beyond the investment time-horizon, on the organisations investment strategy.

Describe

Swedfund is a long-term investor and our commitments and considerations regarding climate impact are always made from a holistic and long-term perspective, including beyond the investment time-horizon. 

Please refer to section SG 07.2 for further details on Swedfund's investment process, and SG 01.4 and SG 01.5 for mission and investment criteria 

13.7 CC. Indicate whether a range of climate scenarios is used.

Indicate the climate scenarios the organisation uses.
Provider
Scenario used
IEA
IEA
IEA
IEA
IEA
IRENA
Greenpeace
Institute for Sustainable Development
Bloomberg
IPCC
IPCC
IPCC
IPCC
Other

Other (1) please specify:

          External local consultant
        
Other
Other

SG 14. Long term investment risks and opportunity

14.1. Some investment risks and opportunities arise as a result of long term trends. Indicate which of the following are considered.

other description (1)

          Gender equality
        

other description (2)

          Blending
        

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

other description

          Within the broader concept of Energy Swedfund has chosen to focus primarily on renewable energy production and distribution
        

14.3. Indicate which of the following tools the organisation uses to manage climate-related risks and opportunities.

14.5. Additional information [Optional]

Swedfund strives to minimise negative climate impact in all its investments. Initiatives relating to the environment and climate form an integral part of the investment process based on Swedfund’s sustainable development policy and separate stance regarding the environment and climate. Climate is one of two thematic areas to be considered before decisions are taken concerning new investments regardless of sector, geography or instrument. In 2015, Swedfund decided to focus solely on investments in renewable energy, thus excluding investments in fossil energy generation. 

CO2-model

Swedfund uses a model to estimate CO2e which has been developed by an external supplier and is based on the Green House Gas Protocol (GHG Protocol). In the model, the CO2e exposure of investments is weighted based on Swedfund’s owner stake in the portfolio company. In cases where Swedfund acted as lender, the determination of Swedfund’s share is based on the outstanding loan's share of the portfolio company's balance sheet total and, in the case of lending to banks, the size of the loan relative to the bank's total borrowing. The calculation presented below consists of Swedfund’s portfolio companies, including the underlying holdings of the funds and the co-financing facilities, a total of 156 investments in 2017 (147 investments in 2016). Emissions from Swedfund’s portfolio amounted to 24 thousand tonnes in 2017 (2016: 35 thousand tonnes). Amongst Swedfund’s investments, those which produce energy, including a gas-fired power station, have the greatest impact on the climate. These holdings account for approximately 60% of all emissions in the calculation. As Swedfund has opted to continue investing exclusively in renewable energy, CO2e exposure from Swedfund’s investments is expected to decrease over time. 

Climate report

During the year Swedfund has also conducted an analysis of how climate and environmental risks impact Swedfund’s investments and, in turn, how they can impact Swedfund’s financial position. The analysis summarises the key environmental risks in the investment portfolio and how Swedfund works to manage and mitigate them. To analyse how the climate risks that have been identified could impact Swedfund’s financial position, Swedfund has developed a method to take into account of the climate risks and the requirements concerning mitigation that Swedfund imposes on portfolio holdings. The degree of impact on Swedfund’s financial position is based on the reasoning that a low climate risk will entail a low financial risk, and correspondingly for medium and high climate risks. Swedfund’s risk profile is analysed from a "top-down" and "bottom-up" approach. "Top-down" analyses and categorises the external climate risks the portfolio is exposed to. "Bottom-up" includes Swedfund’s investment process, i.e. the identification and management of environmental and climate-related risks in the portfolio, as well as CO2e emissions from investments.

Swedfund’s environment and climate risk profile is largely influenced by three factors: The region in which the activity takes place, the sector in which the activity is taking place and the size of Swedfund’s shareholding or loan. The climate risks in Swedfund’s focus regions, Africa and Asia, are relatively high at a general level. At the same time, the risk level in the three sectors in which Swedfund focuses its investments in  are categorised as low , with the exception of investments in renewable energy. The choice of instruments further balances the risk,given Swedfund’s management of environmental and climate-related risks during the screening prior to an investment, as well as measures during the active ownership phase.

The analysis shows that Swedfund’s business model adequately addresses environmental and climate-related risks, partly through the work relating to the environment and climate being carried out within the portfolio companies. The focus sectors which have been established in the business model are sectors which have relatively low environmental and climate risk exposure, and by following the business model, the exposure of Swedfund’s operations and investments to environmental and climate risks is maintained at a limited level. The exception is the energy sector, where the risk is considered to be medium.

At the same time, the Energy & Climate sector is the sector in which Swedfund has identified the greatest opportunity to have a positive impact through its decision to exclusively invest in renewable energy. The investments that Swedfund make in the world’s poorest countries also help reduce the overall risk of climate change, partly through Swedfund’s efforts to identify sustainable solutions through addressing and implementing measures aimed at the environmental and climate-related challenges that Swedfund is facing in the countries in which the company invests.

Climate investment case from the past year - Climate Investor One 

In June 2018, Swedfund invested USD 15 million in the CIO Construction Equity Fund. Access to sustainable energy is a prerequisite for effective poverty eradication, which is the overarching reason why Swedfund is investing heavily both in the sector itself and in broader climate investments. Another factor behind the investment in CIO is that we want to work to increase capital flows from the private sector for sustainable climate projects in developing countries, and we believe that Swedfund can act as a catalyst for private investment. It is hoped that CIO will be able to serve as a good example of how financing facilities can be structured in order to attract different types of capital and contribute to a marked increase in sustainable energy generation in developing countries. 

What makes CIO unique is that it offers tailored financing throughout the life-cycle of a project, with the overarching aim of developing renewable energy generation at a faster pace. The facility is based on the knowledge that different stages of a project’s life-cycle require different types of capital from different types of financing institutions. A structure has therefore been constructed for what is known as ‘blending instruments’, which consequently also means that different investors are able to participate according to their own risk profile.CIO encompasses three separate but operationally interlinked funds. 

 

 


SG 14 CC.

14.6 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
Climate-related targets
          Baseline and reporting
        
          Compliance / non-compliance
        
          GHG protocol
        
Carbon footprint (scope 1 and 2)
          Monitoring and reporting
        
          CO2e
        
          GHG protocol
        
Portfolio carbon footprint
          Monitoring and reporting
        
          CO2e
        
          GHG protocol
        
Total carbon emissions
          Monitoring and reporting
        
          CO2e
        
          GHG protocol
        
Exposure to carbon-related assets
          Monitoring and reporting
        
          CO2e
        
          GHG protocol
        

14.7 CC. Describe in further detail the key targets.

Target type
Time Frame
Description
Attachments
          Relevant target level to be set on company level within three years
        
          Target level for compliance / non-compliance in portfolio
        

          
        
          
        

          
        
          
        

          
        
          
        

          
        
          
        

14.8 CC. Indicate whether climate-related risks are integrated into overall risk management and explain the risks management processes for identifying, assessing, and managing climate-related risks.

Please describe

Environmental and climate-related aspects are fully integrated in Swedfund's investment process and risk management.Within Swedfund's overall mission of contributing to poverty reduction by financing sustainable businesses in emerging markets, Swedfund will seek to minimize the negative climate impact of all our investments, both with respect to new investments, the current portfolio companies and our own operations. When evaluating a new investment opportunity Swedfund carefully considers climate risks and opportunities associated with that specific company, sector and market. Climate-related and environmental aspects are an integral part of Swedfund's ESG work and we apply IFC's Performance Standards in our investment processes and management. Swedfund will seek to minimize the negative climate impact inherent in each investment. The specific actions required to mitigate climate risks and to maximize climate opportunities are agreed upon in an Environmental, Social and Governance Action Plan (ESGAP) before we make an investment. Swedfund is a long term investor and seek to minimize the negative climate impact inherent in each investment. Please see SG 01.8 CC for further on Swedfund's time-perspective for its investments, and SG 07.2 for out investment process with details on our investment/ESG process 

Swedfund's Board of Directors is responsible for defining and managing risks. By working actively within our three pillars, we strive to generate results and long-term value. At the same time, we manage all the risks arising in our investment operations. 

In 2015, Swedfund decided to focus solely on investments in renewable energy, thus excluding investments in fossil energy generation. Swedfund also has a model to estimate CO2e, based on the GHG protocol to proactively measure, manage and report greenhouse gas emissions.

During the reporting year, Swedfund has conducted an analysis of how climate and environmental risks impact Swedfund’s investments and, in turn, how they can impact Swedfund’s financial position. The analysis summarises the key environmental risks in the investment portfolio and how Swedfund works to manage and mitigate them. Swedfund’s risk profile is analysed from a "top-down" and "bottom-up" approach. "Top-down" analyses and categorises the external climate risks the portfolio is exposed to. "Bottom-up" includes Swedfund’s investment process, i.e. the identification and management of environmental and climate-related risks in the portfolio, as well as CO2e emissions from investments

14.9 CC. Indicate whether the organisation undertakes active ownership activities to encourage TCFD adoption.

Please describe

Integral  parts of Swedfund's investment process and active ownership are ESG site visits, internal and external audits,  Environmental, Social and Governance Action Plans (ESGAP) and technical assistance to support sustainable development 


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

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

15.4. Please attach any supporting information you wish to include. [OPTIONAL]


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