Climate change, social misfortunes and concerns, water shortages, wars and migrations are all factors that threaten economic stability and growth. The investor community’s understanding of the need to include sustainability in investment appraisals is rapidly increasing.
AP4 contributes in various ways through sustainability efforts and investments in achieving the United Nations sustainability goals. Currently, AP4 works with two primary focus areas in the investments - Sustainability and Corporate governance, which are areas that already support the United Nations sustainability goals in different ways.
The goal is to, in the areas where AP4 operates, continue to develop activities that contribute to increased returns for the Swedish pensioner while also contribute to a more sustainable society. AP4 is participating in an international collaboration with other European investors, aiming to define the investments that contribute to the UN's sustainability goals beeing defined.
AP4 and United Nations sustainability goals
Below are several examples of the United Nation’s sustainability goals where AP4 either has investments or works with on a continual basis.
Goal 3. God health and wellbeing
AP4 divested tobacco. During the year, AP4 resolved to divest tobacco companies; AP4 believed that the risks associated with tobacco companies is not properly priced and that tobacco company valuations are too high.
AP4 estimates that tobacco companies over time, partly because of increasingly restrictive regulations on tobacco products worldwide, will be valued differently and therefore underperform the index. Tobacco companies run the risk of eventually becoming known as "stranded assets". This is an
assessment that AP4 expect more and more investors will share. Read more on page 22.
Goal 5. Achieve gender equality
AP4 has a long tradition through the nomination process, among others, to promote increased diversity in the boards of listed companies and to increase the number of women on the boards where they are underrepresented. The importance of having procedures and processes in place to contribute to increased gender equality in business was highlighted through ownership dialogues with companies.
AP4 evaluates investment strategies that include gender equality indicators; AP4 has a fund investment where the sustainability focus is gender equality.
Goal 6. Clean water
The oceans and freshwater are a global resource, where water may also be a local geographic resource. Access to clean water is vital, which is why AP4 continuously follows-up on progress and evaluates various sustainability strategies focusing on water.
Goal 8. Good working conditions and economic growth
To promote macroeconomic stability and a good investment environment, employment and decent work are key factors for sustainable development. AP4 participates in international governance
initiatives and, including through the AP Funds' Ethical Council, conducts dialogues with companies to promote decent work, protect the rights of workers, promote a safe and secure working environment, combat forced labor, child labor, modern slavery and human trafficking.
Goal 10. Reducing inequality
To address inequalities between individuals and groups based on sex, age, ethnicity, and economic and social status. AP4 has an investment fund with a focus on children's rights.
Goal 11. Sustainable cities and communities
Cities and settlements should be inclusive, secure, resilient and sustainable. Cities are often at the forefront of development and are a hub for innovation and new ideas. The rapid and large migration to cities poses new requirements that need to be addressed in an ecologically, economically and socially sustainable manner. AP4 owns 25 percent of Vasakronan, Sweden's largest real estate company and the company is an essential part of AP4 's total property holdings.
Vasakronan has worked for a long time with sustainability in its operations. The company has been awarded the highest rating - Green Star - the Global Real Estate Sustainability Benchmark, GRESB, which analyzes sustainability in real estate globally.
Goal 12. Sustainable consumption and production
AP4 understands the importance of increasing awareness of the circular economy and the need for sustainable consumption of, among others, raw materials; this includes the need to plan for the reuse and reduction of waste prior to production start. This issue is emphasized through ownership dialogues that AP4 conducts with companies.
Goal 13. Fighting climate change
AP4 has worked to reduce climate risk in the assets over many years, where approximately 24
percent of AP4's global equity portfolio is invested in low carbon strategies. AP4 also invests in green bonds that contribute to the financing of various sustainable projects.
AP4 is one of four founders of the Portfolio Decarbonization Coalition, PDC, together with the UN, among others. PDC is a coalition of investors and other stakeholders who urge investors globally to measure, publish and reduce their carbon footprint. PDC’s goal is to make it easier for investors to quickly and easily streamline the carbon footprint in their portfolios and to develop "best practices" to achieve results. The PDC advocates transparency and the exchange of knowledge.
Together, the Swedish AP Funds have developed several indicators by which the AP funds report their carbon footprint. Measuring the footprint is important because things that are measured increase the likelihood that they are also managed. The AP Funds coordination of indicators has attracted positive interest and attention in Sweden and internationally.
During the reporting period AP4 has also taken part in several owner initiatives, which support multiple global sustainability goals. Initiatives include, among others: urging companies to refrain from negative climate lobbying; calls on stock exchanges globally to apply the guidelines for sustainability reporting; support of initiatives requiring oil companies to work to reduce the negative environmental impact of their activities; and initiatives relating to, among other, human rights.
Investments that contribute to the UN's SDGs
During 2016, AP4 participated in an international collaboration with eight other global investors and stated the intention to invest in accordance with the UN's 17 SDGs.
The work is now underway to define the type of investments that are deemed to promote the UN's SDGs, in other words, Sustainable Development Investments (SDI’s). SDI’s, like other investments, should also meet expected return requirements.
Other institutional investors that are committed to promoting the goals are the First, Second and Third AP-Funds, PGGM, Fiduciary Management MN, APG, Actiam and Kempen. The cooperation will continue during 2017.
17 global Sustainable Development Goals (SDG)
The United Nations 17 SDGs are designed to, among other things, solve the climate crisis, eradicate extreme poverty and reduce inequalities and injustices in the world. To achieve these ambitious goals, to be reached by 2030, requires that everyone works together - government, civil society and business.
The 17 global SDGs have been divided into 169 sub-goals where each sub-goal is measured using various indicators.