Another Swedish Pension Fund Makes Huge ESG-Focused Divestment

Closely following its sister fund, in accordance with new legislation, Swedish pension fund AP1 has divested from several environmentally harmful categories.

The $1 billion AP1, one of four pension funds that manage the retirement assets of the nation, said it has removed allocations to nuclear weapons, tobacco, coal, and oil sand companies from its investment portfolio “since the beginning of the year.”

This comes days after a previous such move by another Swedish pension fund, AP4, which also announced it would divest from nuclear weapons and oil sand firms. The legislation, which went into effect January 1, required these steps.

In the meantime, though, the funds are also supposed to log substantial long-term returns.

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“The common value base states that the principle of legality means that the AP funds must take into account the international conventions that Sweden has ratified and the international agreements that Sweden has supported,” AP1 said, adding that these agreements form the guidelines of which assets the funds should avoid.

Since each fund interprets how its portfolio is affected by the guidelines, the decisions will vary. AP4 already had the jump on its sister fund by fully divesting from coal last year.

The fund eliminated coal and oil sand companies because the two businesses “have the worst climate impacts,” which makes it universally harder to achieve the low-carbon climate goals of the Paris Agreement.

AP1 cut the nukes because it does not believe “the modernizations and upgrades of existing” weapons are in line with the nation’s aspirations for an eventual nuclear-free world.

As for the tobacco removal, the organization said these investments are not consistent with the “spirit” of the international anti-smoking group’s strictures. The Tobacco Control Convention aims to significantly reduce tobacco consumption as well as the effects of smoking.

The Swedish government annually reviews the decisions of the fund. The spring 2020 evaluation will analyze the first year with the new law.

Tags: AP1, Divestment, ESG, Nuclear Weapons, Pension, Sweden

Ben Meng

Ben Meng, the new chief investment officer of the California Public Employees’ Retirement System (CalPERS), said he will conduct a full review of the investment activities of the largest pension plan in the US in the next 180 days.

Meng, speaking at the pension system’s semiannual retreat meeting in Rohnert Park, said the review will include an investment performance attribution analysis to uncover the drivers of CalPERS returns.

The CIO of the $345.6 billion pension plan said he wants to see what is working investment-wise—and what is not.

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He said CalPERS needs to focus on its “comparative advantages” as a large investor. Meng said with a long-term time horizon, the pension plan is able to invest in illiquid markets and use its size at times to negotiate better fees from external managers. At the same time, he acknowledged the retirement plan’s large size prevents it from being as nimble as a small investor.

Meng, who started on January 2, also gave a full endorsement of CalPERS environmental, social, and governance (ESG) investment focus. The pension plan was one of the early adopters of ESG, particularly as a tool to engage companies in its portfolio on climate change issues and corporate board diversity.

One new CalPERS board member, police Sergeant Jason Perez, who was sworn in at the Jan. 22 meeting, has said he feels CalPERS has put too much focus on ESG and not enough on maximizing investment returns.

CalPERS had an investment return of 8.6% for the fiscal year ending June 30, 2018, but the pension plan is only 71% funded. Massive investment return losses during the great financial crisis and more recently its December 2016 decision to lower investment return average yearly expectations to 7% from 7.5% have contributed to an unfunded liability of almost $139 billion.

Meng, 48, was selected as the new CIO of CalPERS in September. He had been serving as the deputy CIO at the State Exchange of Foreign Administration in China, which manages the country’s foreign exchange reserves. He is a US citizen born in China.

Meng is not a stranger to CalPERS. He had previously worked at the pension plan as investment director of asset allocation, leaving in 2015 after a seven-year tenure. He has worked for the Chinese government agency for the last three years.

Meng replaced Ted Eliopoulos, who left CalPERS in mid-November because of family issues.

Tags: Ben Meng, CalPERS, Pension