Swedish pension fund AP7, Stockholm, has updated its climate action plan for reaching net-zero emissions by 2050, with a focus on the highest-emitting companies and on climate risks beyond its equity portfolio.
The plan published Wednesday said that one major threat to AP7's mission of generating returns and providing pensions "is that we fail when it comes to limiting the global temperature increase to below 1.5 degrees."
The climate action plan calls for the pension fund to prioritize active ownership with companies that together make up 70% of its emissions footprint or have a large climate impact, such as fossil fuels, or those with increased risk of deforestation or without transparent reporting. AP7 said in a statement that 4% of the companies it holds that represent 10% of its managed capital, account for 70% of emissions.
New to the 2023 plan development was a portfolio review based on the Net Zero Investment Framework. That led AP7 to categorize companies by their degrees of climate work, and to resolve that all companies with the highest emissions be subject to "deepened active ownership work" by 2025 and to have credible transition plans by 2030.
In 2022, AP7 subjected 56% of the targeted companies to deepened active ownership and 26% produced credible transition work, the pension fund said in the statement, which noted that AP7 has been "a driving force" in the development of the Global Standard on Responsible Corporate Climate Lobbying.
On May 5, the pension fund said it will place "extra focus" at 2023 annual meetings on holding corporate boards responsible for having credible climate action plans. The pension fund, with 900 billion Swedish kronor ($88.5 billion) in assets, votes at more than 4,000 company meetings each year.
In January, AP7's investment mandate was expanded to allow up to 20% of assets to be invested in unlisted assets, "enabling more climate-related investments," the new policy said. With most assets managed by external asset managers, it wants all managers of private equity holdings and beta-mandates in 2023 to develop a climate policy aligned with the Paris Agreement, and to review climate-related risks and opportunities, the 2023 climate plan said.