Asset AllocationOctober 20, 2014

Swedish State Pension Fund to Cut Fossil Fuel Companies

AP2 has outlined plans to sell out of 20 companies following analysis of the financial risk posed by climate change.

Reported by Featured Author

Sweden’s second pension buffer fund, AP2, is to cut 20 coal and oil companies from its portfolio in a bid to reduce “financial risk” linked to climate change.

The SEK 264.7 billion ($36.7 billion, €28.8 billion) fund is cutting 12 coal companies and eight oil and gas production firms, with a total market value of SEK 840 million, or roughly 0.3% of the portfolio.

“Our starting point for this analysis has been to determine the financial risks associated with the energy sector,” said Eva Halvarsson, CEO of AP2. “By not investing in a number of companies, we are reducing our exposure to risk constituted by fossil fuel based energy. This decision will help to protect the fund’s long-term return on investment.”

In a statement released today, AP2 said its team had reviewed all holdings in fossil fuel companies and assessed the financial risk posed to each one by climate change.

The fund said the coal companies it would sell “face considerable climate-related financial risk, due to the negative environmental and health impacts of coal”. AP2 also cited competition from gas and renewable energy sources as affecting demand for coal.

AP2 also identified “serious climate-related financial risks” for a number of oil producers, particularly involving “high-cost projects” such as extracting oil from oil sands. AP2 said it believed it was “highly likely that these projects may either be stranded or unprofitable”.

The Swedish fund is the latest institutional investor to reduce or completely scrap their investments in fossil fuel producers. Stanford University’s $18.7 billion endowment said in May that it would sell out of fossil fuel-related companies, while the $860 million Rockefeller Brothers fund in September announced its intention to divest from coal and oil. A group of US charities representing $1.8 billion in assets also took similar steps at the start of this year.

Yale University’s $20.8 billion endowment has forged a different path, encouraging its asset managers to “anticipate possible future regulatory actions in response to the externalities produced by the combustion of fossil fuels”—more in line with AP2’s analysis-led approach.

AP2’s CIO Hans Fahlin is #83 in the year’s Power 100 list.