AP4 commits $3.2 bn to low-carbon investments

One of the largest pension funds in Sweden, the Fourth Swedish National Pension Fund (AP4), has allocated $3.2 bn to low-carbon investments, using the MSCI Low Carbon Indexes as its benchmarks.

The fund, which has $35 bn in assets under management and $14.7 bn in equities, has allocated just over a fifth of its equity assets to low-carbon investments as it continues its long-term strategy to ‘decarbonize’ its entire global equity portfolio by 2020.

‘We believe a lower exposure to fossil resources will benefit AP4’s long-term returns,’ says Mats Andersson, who stepped down as CEO last week after 10 years at the fund. During that time, the fund – which reported record capital of SEK312 bn ($36.4 bn) in its most recent interim report – generated an average overall return of 6.8 percent after expenses.

‘We all know the world is facing a number of major global risks and global warming is perhaps the most controversial,’ states AP4 in the interim report, released last week. ‘As investors it is natural to examine how we can contribute to a more sustainable world long term.

‘AP4 has, together with a number of the world’s largest pension funds, developed strategies aimed at significantly reducing the carbon footprint of our investments. So far we have been successful in two dimensions: the carbon footprint has decreased while returns are positive.’

This latest development comes on the heels of the landmark climate change agreement in Paris, but AP4 was an early adopter of the low-carbon approach, making its first investment in a low-carbon strategy in 2012. Two years later, AP4 allocated €1 bn ($1.12 bn) to follow the MSCI Low Carbon Leaders Index when it was launched.

‘As one of four founders of the Portfolio Decarbonization Coalition, AP4 has played a leading role in the campaign to get asset owners to reduce the carbon footprint of their investments,’ says the fund in a press release announcing its latest – and largest – allocation.

The $3.2 bn investment marks the ‘biggest single commitment to low-carbon investing by an institutional investor,’ notes the Financial Times.