Active ownership and sustainability

Sustainable value creation

Investments integrated with sustainability

At AP1, sustainability work is an integral part of our core operation, which is to manage assets for existing and future pensioners.

We keep ourselves informed and initiate dialogue.

Keeping ourselves informed and initiating dialogue are the foundations of our sustainability work. Concentrated equity portfolios, with a limited number of companies, primarily on the stock markets in Sweden and other developed countries, lay a good foundation for analysing and influencing the companies.

Första AP-fonden has a brochure on the expectations we have for the operations we invest in. The brochure can be found here.

We also engage in dialogue with our external asset managers to develop methods to integrate sustainability aspects into the investments. Dedication and expertise among external partners are increasing.

Systematic work on securities

The entire Fund’s listed equity holding is screened every year by external experts, to see whether any companies can be associated with breaches of international conventions. The holding is also analysed continually based on broader sustainability risks using a special database. The carbon footprint is measured annually.

For equity holdings managed under systematic strategies, IT-based sustainability filters are used.

Companies that issue fixed-income securities are scrutinised by AP1 in the same way as the listed equity holdings mentioned above.

Other holdings are mapped

AP1 has good knowledge of the sustainability in its portfolio of wholly and part-owned real estate companies. The annual industry mapping also shows that the Fund’s companies are performing well. Sustainability factors are often pivotal in infrastructure, due to the importance of the investments to society.

Unlisted equities are owned in most cases by AP1 via private equity funds; mapping is used here as basic data for developmental dialogues. We also maintain dialogue about sustainability with hedge funds. Hedge funds with a longer investment horizon are asked to report if they invest in companies on the Fund’s exclusion list.

We have only limited investments in agriculture, but analyses of sustainability factors are pivotal since the sector is associated with sustainability risks.

Sustainability beliefs guide us

Five overriding principles serve to guide AP1’s integrated sustainability investments:

  • Integration. Taking account of sustainability issues in the investment process puts us in a better position to achieve our mission. We believe that well-managed companies have greater potential than others to generate a good return over time.
  • Prioritisation. We prioritise selected areas of sustainability. We balance aspects that are important to the portfolio: return and risk, a major sustainability effect in relation to invested capital, or significant risk to reputation.
  • An overall approach. We consider the companies’ entire value chain. Sustainability analyses are conducted on everything from raw materials to scrapping, rather than on the individual processes that are easiest to gauge. Short-term improvements in key ratios in the portfolio are of less relevance than long-term improvements in companies.
  • Influence. By being an active, long-term owner, we can try to influence companies we own in a desirable direction when it comes to sustainability. To maximise the impact, we work with others.
  • Openness. Greater transparency in sustainability provides us with a better body of basic data when deciding on investments. We promote the development of better, more relevant sustainability reporting, both among the companies and ourselves.

Stakeholder prioritisation

To lay the foundation for continued development of sustainability goals, the four AP Funds have conducted a materiality analysis by maintaining dialogue with stakeholder groups in the Ministry of Finance, the pension group, beneficiaries, the community, industry colleagues, suppliers, employees and portfolio companies.

Positive relationship between sustainability and long-term returns.

All stakeholders agree that the AP Funds’ conduct in investments and asset management are more important to sustainability than the Fund’s direct influence through its own operation.

Three issues were highlighted as being of top priority: indirect environmental impact, indirect climate impact and human rights. There were various special themes: a business ethical approach, rule compliance, a sustainable supply chain, diversity and gender equality, anti-corruption and working conditions.

The stakeholders pointed out that the AP Funds could increase trust through collaboration, greater transparency and more active communication. They said that showing the positive relationship between sustainability and long-term returns would boost confidence and build security among future beneficiaries.

 

Follow-up of the Fund’s work on sustainable value creation

With the aim of continuously improving the Fund’s work on sustainable value creation, we are transparent and report the effects of our work. We do this primarily through the ownership report, the annual report and the Fund’s website. The First – Fourth AP Funds have jointly agreed on common guidelines for reporting how the objective of exemplary management has been achieved.

Contact information

Ossian Ekdahl
Sustainable Value Creation
ossian.ekdahl@ap1.se