Swedish Pension AP1 Divests From Fossil Fuels

Swedish pension fund AP1 said it will no longer invest in fossil fuel companies. The SEK365.8 billion ($35.8 billion) fund said the transition to a low-carbon economy represents a significant amount of uncertainty for companies involved in coal, oil, and natural gas activities and that “continued investments related to these activities can increase the financial risk exposure of the fund.”

The fund said the move is a result of its work to identify and analyze climate-related financial risks in the economy and that it came to its decision after conducting an assessment on the issue. AP1 said divesting from fossil fuels is just one way in which it is managing its portfolio’s exposure to climate change risk. It has also decided to develop measurable targets and a roadmap toward reaching a carbon neutral portfolio by 2050.

“Our assignment is to manage the fund’s assets in an exemplary way through responsible investments and achieve high returns for the long term, while supporting sustainable development,” AP1 Chairman Urban Hansson Brusewitz said in a statement.

Brusewitz said a key part of this goal is to manage the fund’s climate-related financial risk exposure and align it with the overall risk level of the fund, adding that “divesting from fossil fuels is an efficient way for the fund to manage the financial risk associated with a transition in line with the Paris Agreement.”

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The fund said it has been working to identify and assess the effects of climate change and the transition to a low-carbon economy on the fund’s investment portfolio. It said a transition in line with the Paris Agreement is expected to result in comprehensive measures to support a shift to an economy that is less dependent on fossil fuels.

“Evolving regulatory actions, increased taxation, and emerging new technologies [are] expected to contribute to a reduction of global carbon emissions,” the fund said. “In addition, a shift in demand from households and corporations away from carbon intensive products may also increase over time.”

Prior to its decision to divest fossil fuels, the fund had adopted a new sustainability strategy and a new climate strategy, as well as developed a model for calculating and monitoring the carbon footprint of its portfolio. It also established a sustainability committee within its board of directors.

“Managing the fund’s exposure to climate-related risks has been a prioritized focus area for some time and has resulted in a steady reduction of the risk exposure,” the fund said. “At the end of 2018, a decision was taken to no longer invest in companies involved in thermal coal and oil sands,” the fund said, adding that the board of directors’ recent decision to divest from all fossil fuels “is a natural step in aligning the climate-related financial risk to the overall risk level of the fund.”

In addition to eliminating fossil fuel investments, the fund said it will promote investments in companies that are actively contributing to the fossil-free transition and are part of a profitable and sustainable economy over the long term.

“We will of course continue our important work as an active owner influencing companies,” Brusewitz said. “As a responsible investor, an important contribution in the climate issue is to make clear requirements on portfolio companies and our investment managers to accelerate their agenda for managing the climate risk exposure.”

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Tags: AP1, Climate Change, divest, Fossil Fuels, sustainable investing, Swedish, Urban Hansson Brusewitz

Prudential Financial has launched its first green bond with a principal amount of $500 million, becoming the first US life insurance company to do so.

Prudential said the net proceeds from the green bond will be allocated exclusively to existing or future investments that provide environmental benefits, including reduced greenhouse gas emissions and improved resource efficiency. The eligible categories for the use of the net proceeds include renewable energy, green buildings, energy efficiency, clean transport, sustainable water and wastewater management, pollution prevention and control, and environmentally sustainable management of living natural resources and land use.

“Our green bond is an important next step in our efforts to ensure that environmental stewardship is reflected across Prudential’s business activities and operations,” Charles Lowrey, chairman and CEO of Prudential, said in a statement.

According to the Climate Bonds Initiative, a UK-based investor-focused not-for-profit group, worldwide sales of green bonds were $257.5 billion in 2019 and are expected to grow to $350 billion in 2020.

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“Green infrastructure presents a huge investment opportunity globally, with an estimated $100 trillion worth of climate-compatible infrastructure required between now and 2030 in order to meet Paris Agreement emissions reduction targets,” the Climate Bonds Initiative said.

Prudential has also established a “Green Bond Council” that is made up of members of its treasury, chief investment office, and corporate governance/sustainability teams. The council will be responsible for reviewing and validating eligible projects as well as relevant reporting to investors.

The insurance giant said Sustainalytics, an independent provider of environmental, social, and governance (ESG) and corporate governance research and ratings, has reviewed and verified that Prudential’s Green Bond Framework is consistent with the International Capital Market Association’s Green Bond Principles, which are voluntary process guidelines that recommend transparency and disclosure.

An October commentary by credit rating agency AM Best said the impact of increasing weather volatility seen in insurers’ income statements makes environmental and climate change a direct consideration in the underwriting process. It also said the increasing public interest in sustainable investing is spurring companies and investors to consider ESG risks and opportunities in their operations.

“To match the duration of their long-dated liabilities, life insurers need to invest in correspondingly long-duration assets,” AM Best said. “And allocations to green and sustainability-related infrastructure projects satisfy insurers’ needs for duration-matching and diversification in their portfolios.”