One of five Swedish state pension retreats from carbon investment. “The $38-billion Fourth Swedish National Pension Fund, AP4, one of a group of five state-owned pension funds, plans to invest in a tailored emerging markets fund comprising companies that have both low-carbon emissions and low fossil-fuel reserves.” “AP4, which returned over 6 per cent in the first six months of 2013 buoyed by domestic and global equity particularly, has some of its largest foreign equity holdings in oil and gas companies held in passive mandates. If the latest initiative proves successful, exposure to these companies could begin to tail off, explains chief executive, Mats Andersson, who describes the process as trial and error but says the trend is clear. “If it works, we will increase our exposure so that hopefully it will be a much bigger part of our portfolio. We want to do this on a global basis. In 10 years time, carbon will be priced and valued in a different way so that companies with a high carbon footprint will perform worse. This sustainable approach isn’t about charity, but about enhancing returns.
….Companies’ carbon footprints will be measured by collecting annual emissions data from publicly available sources, while carbon reserve exposure includes rights to coal, oil and natural gas reserves – a potential future source of greenhouse gas emissions not accounted for in the carbon footprint analysis. “There is complexity when it comes to identifying those companies with the highest carbon footprint to exclude, as one can use a relative or absolute measure,” says Krieg. “Also, the optimisation process is needed to ensure that the resulting portfolio has similar characteristics as the index without concentration risk.”