Thematic sustainability analysis

AP4 continuously analyses sustainability trends and seeks out investment opportunities that are expected to contribute to, and benefit from, the transition in the long term and which also provide a good expected return. Investments with a specific focus on the climate transition are developing at a rapid rate and this year’s thematic analysis has provided AP4 with the latest knowledge and refined tools.

AP4’s thematic sustainability investments are based on an analysis that AP4 first performed in 2018 and subsequently updated in 2023.

“It has both developed our knowledge and provided refined tools for our asset management organisation. Both these aspects are important for our ongoing work to identify good, well-balanced thematic sustainability investments,” explains Mikael Anveden, Head of Portfolio Analysis at AP4.

Mikael Anveden, Head of Portfolio Analysis at AP4.

The thematic analysis update was based on a broad analysis of external factors. The initial phase identified the megatrends that represent a spectrum of events in areas such as consumer behaviour and technology, as well as key trends such as greenhouse gas mitigation and biodiversity loss.

“These trends change at different rates and have different impacts on the climate leading up to 2030, which is the horizon we have chosen to focus on in this analysis. We therefore began by discussing and ranking relevant megatrends based on their significance for the climate in 2030 and the rate of change of the trend itself,” continues Mikael Anveden.

The most relevant megatrends were then summarised and grouped into five investment themes, with each theme accounting for a large proportion of the carbon emissions in society. Together they account for around 90% of global emissions. The following investment themes were selected:

  • Decarbonize the industry: the smart, efficient and flexible production of fossil-free energy
  • Clean up industry: the production, use and recycling of climate-friendly materials and products
  • Decarbonize transport: efficient and sustainable passenger and freight transport
  • Protect the biosphere: the sustainable management of land and water, agriculture, forestry and biodiversity conservation
  • Green buildings and infrastructure: the climate-friendly design, construction, use and recycling of buildings and infrastructure

Specific areas offering opportunities for AP4 to invest were then compiled, based on each of the investment themes identified.

The individual investment areas change over time and may be more or less mature. AP4 has therefore developed a framework for the active and continuous evaluation of the investment areas.

“Two factors came into play when prioritising the investment areas. One is attractiveness, defined as market size, growth and regulatory headwinds/tailwinds.

The second is investability, defined as technological maturity, and is linked to relevant megatrends and expected capital inflows. Their importance for the climate transition is also key, of course,” Mikael emphasises and continues:

“We remain focused on the areas where we have been making investments for several years, such as wind and solar power, but we have also identified interesting areas to monitor going forward. Examples of these include biomaterials from wood and green metals.”

As a result of its thematic analysis work, AP4 has investment areas to work on that are highly topical and still relevant.

“It is important to find a way to continuously monitor and update the underlying investment areas. We have created an annual wheel for our thematic analysis work and we have established a new working group that is responsible for monitoring the themes and training the organisation.”

The work now continues to develop knowledge and evaluate specific investment opportunities. Technology is developing at a rapid pace and the cost of a particular technology is usually critical to its success.

“Here we are closely following developments in areas such as hydrogen production, energy storage and carbon capture. Wind and solar are part of the foundation for the climate transition, but we want to look at the whole picture,” concludes Mikael.

Read more about AP4's sustainability work in our Annual Report 2023