Portfolio level – Portfolio decarbonisation reference target
Approach: AP7 reports carbon footprint of the equity portfolio each year. Since 2021 our footprint reporting includes performance allocation, which differentiates between emission changes due to changes in holdings vs changes in companies’ emissions.
Our expectation is that the carbon footprint will decrease over time because of reductions in company emissions. However, AP7 does not set targets relating to portfolio emissions because we believe that it is a poor metric for tracking progress toward net zero in the short term. Carbon footprint is backward facing and does not evaluate an issuer’s plans, policies and investments.
Furthermore, targets based on carbon footprint may incentivise counter-productive, short-term actions. AP7 uses carbon footprint data to prioritise companies for enhanced active ownership measures.
Portfolio level – Investment in climate solutions target
Baseline date: 31 December 2020
- Fixed income: Green bonds comprise 5% of AP7’s Fixed Income Fund.
- Equity portfolio: Clean tech and green and ESG-weighted mandates comprise 8% of AP7’s Equity Fund.
Target years: 2022, 2025
- 2022: Green bonds comprise 10% of Fixed Income Fund
- 2025: Green bonds comprise 50% of Fixed Income Fund
- 2022: Compile a transition mandate focused on driving the transition through a combination of active investing and active ownership
- 2025: Transition mandate comprises 10% of Equity Fund
Methodology: AP7’s total assets under management is USD 90 billion as of 31 December 2021. AP7 has investments in climate solutions (green mandates) in both the Equity Fund and the Fixed Income Fund.
AP7’s investment directives currently restrict AP7 to only invest in equities and fixed income.
New directives are expected to be approved by the Swedish Parliament before the end of 2022 which will allow AP7 to invest in real assets/alternative investments.
Overall targets for investment in climate solutions across asset classes will be set after AP7’s new directives are decided on and announced.
Asset level – Portfolio coverage target
Baseline date: 31 December 2021
Baseline performance: AP7 is a universal owner with over 3000 listed equities. AP7 identifies an ICAP Portfolio on which to set the portfolio coverage target. The portfolio is composed of the companies with the largest carbon footprints, which in aggregate correspond to at least 70% of financed emissions for the entire listed equity portfolio.
- 26% of the number of companies in the ICAP Portfolio are “transitioning companies” (13.1% of AUM in the ICAP portfolio; Transitioning companies are assessed as “aligned”, “aligning” or “committed to aligning” using publicly available metrics from investor-led initiatives: the CA100+ NZ benchmark and TPI.
- 2.1% of AUM in the ICAP Portfolio meet the “aligning” criteria. 11% of AUM meet “committed” criteria. However, less than half of the ICAP portfolio could be assessed as we lack data for 56% of AUM.
Target year: 2025, 2030
- 2025: 50% of the number of companies in the ICAP Portfolio are “transitioning companies”.
- 2030: 100% of companies in the ICAP Portfolio are “transitioning companies” by 2030.
Asset classes in scope: Listed equity, which corresponded to around 86% of total AUM at year end 2021.
The ICAP Portfolio covers 10.4% of listed equity AUM.
Data sources: AP7 chooses to base its assessment of company net zero alignment on publicly available data from asset owner-led initiatives with transparency on data and methodology.
Data sources are CA100+ Net Zero Benchmark and Transition Pathway Initiative (carbon performance, underlying metrics within the management quality assessment)
Asset level – Engagement threshold target
Approach: AP7 identifies a list of priority companies to target for enhanced active ownership. The list consists of all companies within the ICAP Portfolio (70% of financed emissions), as well as additional companies which are climate disclosure laggards or have significant scope 3 emissions. Active ownership tools include collaborative and bilateral dialogue with companies, annual meeting actions, public blacklisting and legal processes. In addition, AP7 exercises its voting rights for all companies in its portfolio, (approximately 4000 meetings per year) with a strong voting policy on climate.
Target: By 2025, 100% of the priority companies will be subject to active ownership activities.
Methodology: Engagement with companies is important and a central part of AP7’s climate action plan. AP7 has a strong engagement strategy covering companies representing 70% of financed emissions and our voting policy covers all companies in our portfolio.
As a universal active owner, AP7 strives to influence the whole market in a sustainable direction in the long term. We evaluate and prioritise activities based on the goal of achieving real world impact.
Amongst other activities, we support the development of standards and norms and publish findings from our thematic deep-dives, collaborate with academics and interact with policymakers.
Some recent examples:
- AP7 is one of three investors responsible for the development of a global standard on responsible climate lobbying
- We publish our experiences on measuring impact
- We pursue a legal process to defend minority shareholder rights at annual meetings in
the German market
- We make our voting record public, and open up our active ownership activities to
Operational emissions: In line with our latest materiality analysis we are not focussing on our operational emissions. With fewer than 50 staff, all based in Stockholm, AP7 rents office space in a LEED Platinum (2017) certified building with green electricity, and our travel policy includes environmental considerations. AP7 has not set a target for its operational emissions as they are considered negligible in light of the impact of our assets under management.
Fossil fuel investment: AP7 blacklists companies found to be in clear breach of international norms and standards. The climate aspect in AP7’s blacklisting is continually being developed in line with research on the climate transition. Since 2020, we have therefore been blacklisting companies with a large absolute climate impact in coal production and coal power, and that do not have plans to transition away from these activities.
AP7 case studies
AP7 (SJUNDE AP-FONDEN): Active ownership for responsible climate lobbying
23 March 2023
AP7 (SJUNDE AP-FONDEN): An alignment methodology using publicly available data
23 March 2023