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AP4

PRI reporting framework 2020

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ESG issues in asset allocation

SG 13. ESG issues in strategic asset allocation

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

Describe AP4 conducted its first climate scenario analysis in 2018, and the analysis was further developed in 2019, was integrated in the medium-term scenarios for the economic macro analysis.

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

          Allocation to low-carbon strategies and thematic sustaibility investments and allocation to sustainable alternative investments.
        

13.3. Additional information. [OPTIONAL]


SG 13 CC.

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

Describe

AP4 conducted a climate scenario analysis in 2018 (Please see annual report 2018 pages 28-29) which was further developed in 2019 (Please see annual report 2019 pages 29-31), when the analysis was integrated in the medium- term scenarios for the economic macro analysis, which is then used as a basis for decisions on overarching portfolio allocation, among other things. The starting premise for AP4’s climate scenario analysis is achievement of the Paris Agreement’s goals, which entails a comparatively rapid and proactive climate transition. This transition can take place in several different ways. AP4’s overarching scenario analysis evaluates the transition’s potential impact on supply and demand, and by extension, also on anticipated growth and inflation. In the base scenario, the climate transition is expected to accelerate over the coming ten years through a gradual sharpening of climate policies. In part this will entail more and stricter climate laws and in part a higher and more widespread CO2 price along with new technology that promotes the transition. In the alternative scenarios, a faster and slower climate transition is modelled as well as the degree of political and technological drivers. 

Describe

An important conclusion of climate scenario analysis is that a slower initial transition should not be interpreted to mean that it will not take place, but rather that it will be more intense once it takes place. Fossil assets and the value chains that deliver into fossil energy production will be affected first and foremost. The transition will also entail extensive shifts in value within all sectors that are large energy consumers through production processes, in transportation, steel and metal production, agriculture and food, and construction and real estate. AP4 believes that the climate transition on the whole constitutes an asymmetric force that will have a varying impact between and within various sectors. Some existing companies within a given sector will be negatively affected while others may be part of the solution at the same time that new companies and technologies will take market shares. AP4 is therefore working actively with a combination of quantitative and fundamental analyses at the portfolio and sector levels to identify potential winners and losers.

AP4’s conclusion is that the risks of being late in the transition are assumed to outweigh the risks of being too early. The upside for resource-intensive assets is limited by the emergence of climate-friendlier alternatives – which are gradually winning support through technology, policies and reputation – at the same time that the risk in these investments is great, as assets could become stranded due to regulatory and technical risks combined with market and reputation risks. Short-term market movements, such as changes in oil prices, can hit in both directions, but over time the market is expected to move in this direction given the strong focus on sustainability

13.5 CC. Indicate who uses this analysis.

13.6 CC. Indicate whether your organisation has evaluated the potential impact of climate-related risks, beyond the investment time horizon, on its investment strategy.

Please explain the rationale

Investment horizon is long, up to 40 years. It is not possible to make predictions beyond that time horizon.

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

13.8 CC. Indicate the climate scenarios your organisation uses.

Provider
Scenario used
IEA
IEA
IEA
IEA
IEA
IRENA
Greenpeace
Institute for Sustainable Development
Bloomberg
IPCC
IPCC
IPCC
IPCC
Other
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.

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

Specify the AUM invested in low carbon and climate resilient portfolios, funds, strategies or asset classes.

Total AUM
trillions billions millions thousands hundreds
Currency
Assets in USD
trillions billions millions thousands hundreds

Specify the framework or taxonomy used.

Internal models, low carbon strategies are managed as an active position based on internally developed investment strategies.

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

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

AP4 measures the portfolio’s carbon footprint and has been publishing information about it in its annual reports since 2014. Together with other AP Funds, AP4 has standardised how the AP Funds conduct their carbon footprint reporting by introducing three joint metrics in 2015 that describe the carbon footprint of its investments. In 2017 the AP Funds’ carbon footprint reporting was complemented with the TCFD’s metrics for CO2 intensity. In 2019 the AP Funds further developed their reporting to also include an account of changes over time. These measures are aimed to report changes in a portfolio’s carbon footprint owing in part to the changes that the AP Fund makes in the portfolio and in part to the work conducted by the underlying portfolio companies to reduce their emissions. Please see annual report 2019 page 32 for more details. In 2019 we also started to include measuement and reporting of carbon emissions of our unlisted real estate portfolio.

14.5. Additional information [Optional]


SG 14 CC.

14.6 CC. Provide further details on the key metric(s) used to assess climate-related risks and opportunities.

Metric Type
Coverage
Purpose
Metric Unit
Metric Methodology
Climate-related targets
          To be aligned with the Paris agreement and Swedish climate goals
        
          Relative emissions, change in emissions, share of portfolio
        
          Relative emissions and change of emissions based on total emissions and TCFD intensity. Share of portfolio based on market values.
        
Weighted average carbon intensity
          Measure climate risk of portfolio
        
          Million ton CO2e/MSEK
        
          Please see common AP Funds reporting standard.
        
Carbon footprint (scope 1 and 2)
          We measure and report Scope 1+2 emissions from listed equities portfolio as well as unlisted real estate portfolio.
        
          Million ton CO2e
        
          Please see common AP Funds reporting standard.
        
Portfolio carbon footprint
          Measure climate risk of portfolio
        
          Million ton CO2e
        
          Please see common AP Funds reporting standard.
        
Total carbon emissions
          Measure climate risk of portfolio
        
          Million ton CO2e
        
          Please see common AP Funds reporting standard.
        
Carbon intensity
          Measure climate risk of portfolio
        
          Million ton CO2e/MSEK
        
          Please see common AP Funds reporting standard.
        
Exposure to carbon-related assets
          
        
          
        
          
        
Other emissions metrics
          
        
          
        
          
        

14.7 CC. Describe in further detail the key targets.

Target type
Baseline year
Target year
Description
Attachments
          Continuously
        
          
        
          Decrease emissions and increase share of investments that lower climate risk in the asset portfolio.
        

          Continuously
        
          
        
          Decrease emissions and increase share of investments that lower climate risk in the asset portfolio.
        

          
        
          
        
          
        

          
        
          
        
          
        

          
        
          
        
          
        

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

Please describe

AP4 conducted its first climate scenario analysis in 2018, and summarized results of the analysis were presented in the 2018 Annual Report. Work with the climate scenario analysis was further developed in 2019, and the analysis was integrated in the medium-term scenarios for the economic macro analysis, which is then used as a basis for decisions on overarching portfolio allocation, among other things. Based on the climate scenario analysis, AP4 has identified a number of themes that are essential for the climate transition. These are considered to be investable and have impact on the portfolio today. Among these themes are the energy shift including mobility, resource efficiency and renewable energy.AP4 searches for, evaluates and makes thematic, proactive investments in specific sustainability areas. Examples of such investments are green bonds, alternative investment funds with a pronounced sustainability focus, and directly owned companies with a distinct sustainability focus as part of their business strategies, such as in real estate and infrastructure.

14.9 CC. Indicate whether your organisation, and/or external investment manager or service providers acting on your behalf, undertake active ownership activities to encourage TCFD adoption.

Please describe

In cooperation with other institutional investors through for exmple the Climate Action 100+ initiative as well as in dialogues with Swedish companies and with our external managers.


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.

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

50 %

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

          Specific mandates to reduce the carbon footprint. Specific green bond investments. Specialized ESG managers.
        

Asset class invested

35 Percentage of AUM (+/-5%) per asset class invested in the area
1 Percentage of AUM (+/-5%) per asset class invested in the area
44 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

AP4 invests in low-carbon equity strategies and in green bonds if there is a real strategy for the use of the bond funding, and if the bonds are competitively priced. AP4 also invests in infrastructure companies and entities focusing on sustainable infrastructure. We also invest in corporate entities that focus on sustainable real estate, however we are not able to report on the proportion of the underlying assets that are defines as sustainable.

 

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



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