AP4’s approach to the Disclosure Regulation

In 2018, the EU launched an action plan to increase the share of sustainable investments, promote a long-term approach and make sustainability more transparent, with the overall goal of making the EU carbon neutral by 2050. As part of this, the EU issued a number of regulations to strengthen the action plan. One of these is the Sustainable Finance Disclosure Regulation (SFDR), which came into force in March 2021. The main objective of the Disclosure Regulation is to increase transparency on sustainability issues and to enhance comparability between financial market players with regard to the integration of sustainability risks and the consideration of negative impacts on sustainable development in their processes.

Första, Andra, Tredje and Fjärde AP-fonden (the AP Funds) are not directly covered by the Disclosure Regulation, but since it is part of the AP Funds’ mission to manage their assets in an exemplary manner through responsible investment and responsible ownership, as well as to report on how that goal has been achieved, the AP Funds will in the coming years develop the reporting, mainly on their respective websites, in line with the Regulation.

How AP4 integrates sustainability risks into the investment process

According to the SFDR, sustainability risk “means an environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment”.

It is an investment belief for AP4 that taking sustainability issues into account in the asset management is a precondition for being able to conduct long-term successful asset management, as it contributes to a better risk-adjusted return over time

Since the AP Funds manage the public pension system’s assets, the AP Funds’ core values and actions on sustainability issues are based on the Swedish State’s cores values, which are concretised in, among other things:

  • Sweden’s Instrument of Governance (corresponds most closely to the constitution of other countries), which is based on democracy, fundamental freedoms and rights, the equal value of all people and the individual’s freedom and dignity,
  • the UN’s international conventions that Sweden has signed, concerning among other things the environment, human rights, labour rights, corruption and inhumane weapons,
  • the ILO’s core conventions,
  • international frameworks that Sweden supports, such as the UN Global Compact, the OECD Guidelines for Multinational Enterprises, the UN Guiding Principles on Business and Human Rights (UNGP), and
  • Sweden’s positions on matters pertaining to international public law.

AP4 has five main strategies for conducting sustainability work in the investment portfolio:

1. Measure and report on sustainability

AP4 measures and reports on its internal sustainability work. Transparent reporting is something that AP4 also expects from the companies and businesses that AP4 has invested in. AP4 advocates for the development and production of qualitative sustainability data, and for transparent and suitable reporting on such from all pertinent parties.

2. Integrate sustainability factors in investment processes

AP4 integrates sustainability factors in investment decisions in a structured manner, adapted to the respective asset classes and investment process. Sustainability shall be an integrated part of all internal investment processes in order to, over time, ensure well-balanced and controlled risk and to be able to achieve a high return. When using external asset management services, sustainability is an important evaluation criterion.

3. Influence as an owner, investor and community actor

AP4 takes responsibility as an owner and investor by influencing companies, other investors and political decision-makers in a dialogue on sustainability issues. AP4 collaborates with other investors in order to achieve greater influence in dialogues and other advocacy work. For AP4, active corporate governance is an effective tool for, over time, creating and safeguarding asset values – also in relation to sustainability aspects.

4. Reduce sustainability risks in the portfolio

AP4 strives to reduce exposure to assets that are associated with elevated sustainability risks in an effort to reduce the level of risk in the portfolio. AP4 may also choose to not invest in companies whose operations are judged to be not aligned with an exemplary interpretation of the international conventions that Sweden has signed or international guidelines that Sweden supports. AP4 does invest in securities issued by companies or countries that are the subject of sanctions by the EU or UN.

5. Invest in strong sustainability trends

AP4 makes thematic investments that contribute to and benefit from the sustainability transition. Having an understanding of and analysing various sustainability aspects can contribute to returns through identification of investment opportunities for AP4, for example in specific sectors or companies that can be expected to contribute to and draw benefit from the transition to a more sustainable society.

AP4’s expectations on companies with respect to sustainability

AP4 believes that companies have a responsibility to work in accordance with laws, conventions and international guidelines, regardless of whether these are directed at states, individual companies or organisations. This responsibility applies regardless of whether the countries in which the companies operate have signed the conventions or have weaker protection of rights under law.

Screening of portfolio and reactive dialogues

All of AP4’s investments coupled to listed companies are subject to regular scrutiny with respect to violations of international conventions. If a company is identified in this process, a more in-depth analysis is initiated, followed by a dialogue, which is AP4’s main tool for influencing companies. AP4 engages in dialogue with companies through its own asset management activities as well as through the Council on Ethics of the AP Funds (the Council on Ethics), which is a collaborative body between the AP Funds. A dialogue with respect to a violation that has been verified shall be conducted for a maximum of four years if the dialogue is not constructive. In the event a dialogue is not constructive or the goal of the dialogue is not expected to be achieved, the Council on Ethics of the AP Funds recommends that the AP Funds exclude the company. Decisions to exclude a company are made by each AP Fund individually. An exclusion decision entails that AP4’s holdings of securities issued by the company in question are to be divested. Every year the Council on Ethics monitors to see if the situation for excluded companies has changed. If a company resumes conducting operations in line with international conventions, a decision on re-inclusion may be made.

Proactive projects

The AP Funds conduct through the Council on Ethics proactive work that is expected to contribute to positive change and that address particularly exposed and difficult sustainability challenges within companies and their value chains. This work aims at solving challenges and preventing violations, accidents and incidents from happening. This contributes to improved companies and lower risk in the assets of the AP Funds.

Decisions to not invest in certain types of assets

One step in the integration of sustainability in asset management consists of the values-based decisions on which assets AP4 chooses to not invest in. When AP4 makes a determination regarding an investment, it is based on the requirement set forth in the AP Funds Act that management of assets shall be done in an exemplary way. This means that AP4 is to invest in and own companies in a responsible manner and contribute to sustainable development. AP4’s investment decisions are based on – in addition to the AP Funds Act – the Swedish state’s core values, i.e., the international conventions and agreements that Sweden as a nation has chosen to support. These include, for example, the UN’s Universal Declaration of Human Rights, with respect to the climate issue, the Paris Agreement. International conventions are often written to govern how countries are to act, not regulate individual companies’ operations. This means that sometimes there are different interpretations of whether – and in such case how – a given company is in violation of a convention. In cases where there is confirmed information that a company is in any way in violation of a given convention, the AP Funds’ joint Council on Ethics can recommend that the AP Funds not invest in the company.

AP4 has decided to not invest in the following companies or sectors active within:

  • Nuclear weapons
  • Tobacco and cannabis (does not cover cannabis products for medical or scientific purposes)
  • Fossil-based companies (for which thermal coal or oil sand account for more than 20% of revenue)
  • Cluster munitions and mines
  • Company-specific reasons (such as conventions on health and safety, negative environmental impact, labour law, corruption and operations in occupied areas)


How AP4 identifies, prioritises and addresses the main negative impacts on sustainable development

AP4 conducts a stakeholder dialogue and materiality analysis on a regular basis together with other AP Funds to inform stakeholders about the AP Funds’ work and to assess stakeholders’ views of the AP Funds’ handling of their respective assignments and operations in relation to returns and sustainability aspects. This dialogue and analysis contributes to prioritisations of the focus of sustainability work as well as consideration of material sustainability risks and reporting. Based on the stakeholder dialogue and own analysis, AP4 has identified three areas as being the Fund’s most material with respect to sustainability risks:

Climate risks

Climate change, which includes changes to the environment, biodiversity, ecosystems and ecosystem services, and the climate transition are systemic risks with global impacts on society, economies and expected returns. Climate risks include physical risks, such as extreme weather, flooding and rising sea levels, and transition risks, for example changes in regulations, industry requirements and demand. Climate risks can thereby have a significant impact on the companies and assets that AP4 invests in.

Human rights

Human rights are part of international public law and are codified in various types of international agreements and conventions.

All companies have a responsibility to respect human rights, and this is part of sound and sustainable business activities and risk management. Respecting human rights entails that companies shall avoid having negative impacts on human rights and that companies shall act to prevent such negative impacts from arising. Companies can have an impact on human rights through their operations, supply chains, interaction with communities and stakeholders, and through use of their products and services. Human rights violations can lead to, in addition to substantial individual and collective suffering, damaged reputation, fines, etc., which in turn can have a significantly negative impact on AP4’s investments in companies and assets.

Risks relating to possible violations of human rights are handled by AP4 through the regular screening of the portfolio, reactive dialogues and proactive projects, which are described above.


Corruption and shortcomings in business ethics are a global problem that exists in many companies and sectors. It is harmful and costly for society, it skews sound competition and undermines asset values as well as people’s trust in society governed by law as well as political and economic systems. Various forms of corruption present commonly occurring sustainability risks for companies. With broad, global asset exposure, corruption poses a risk to the portfolio’s long-term return.

Risks relating to possible corruption are handled by AP4 through the regular screening of the portfolio, reactive dialogues and proactive projects, which are described above.

Focus areas in AP4’s asset management and sustainability work

There are sustainability areas with systemic impacts on an investment portfolio and that are particularly suitable for an investor to address. These are areas that are financially significant and moreover that offer investment opportunities and thereby an opportunity to wield significant influence on a portfolio’s long-term return and risk characteristics. AP4 has set two such focus areas: Climate & Environment and Corporate Governance.

Climate & Environment as focus area

Climate change is one of the greatest challenges of our time, with a major expected impact on the environment, biodiversity, ecosystems and ecosystem services, and thus also on countries, sectors, companies and individual people. Climate change is considered to be a serious systemic risk that will have a growing impact on asset values and opportunities to generate long-term returns. Slowing climate change is therefore a prerequisite for stable economic growth and thereby for AP4’s opportunities to successfully perform its mission over time.

AP4 has chosen Climate & Environment as a prioritised sustainability area in its asset management operations. The area is considered to be financially material and represents a systemic risk that affects the ecological, social and financial stability of all the world’s economies and countries. Sectors and companies with couplings to climate change are exposed to significant risks – physical, regulatory, technological and social – that could bear a substantial impact on asset values and opportunities to generate long-term returns.

Measure and report on climate

AP4 measures and reports GHG emissions in accordance with uniform guidelines established for the AP Funds, which pertain to listed shares. In additionAP4 also reports on GHG emissions of the unlisted real estate portfolio. AP4 is working continuously to broaden this measurement and reporting to an even larger share of the portfolio, as data with sufficient coverage and quality becomes available. AP4 strives to follow the guidelines for sustainability reporting set out in the Swedish Annual Accounts Act as well as the GRI Standards. Climate reporting based on TCFD can be found in AP4’s annual reports.

Integrating the climate issue into the asset management process

AP4 supports the Paris Agreement and the more ambitious Swedish environmental objective to achieve net-zero GHG emissions by 2045. AP4’s portfolio and investments are to support these goals. AP4 has cut carbon emissions by more than half for the listed equity portfolio since 2010, with a decrease of 60%. AP4’s target is to further cut emissions in half from the 2020 level with the ambition to achieve net-zero emissions by 2040 at the latest

Influence as owner

AP4 has reduced the carbon footprint of its portfolio through portfolio changes. To achieve the climate goals, the companies that AP4 invests in must also reduce carbon emissions in their own respective operations. In its ownership role AP4 influences companies and cooperates with other investors to broaden knowledge about how the climate issue can be addressed in the asset management operations. AP4 also engages in dialogues with political decisionmakers to create conditions for a climate transition. Two examples of investor partnerships that AP4 participates in are Climate Action 100+, which aims through investor dialogues with companies to influence them to reduce their greenhouse gas emissions and thereby slow climate change, and the Transition Pathway Initiative (TPI), an investor-led initiative that urges companies to reduce their greenhouse gas emissions and transparently report on this work in accordance with the Task Force on Climate-related Financial Disclosures (TCFD). TPI is building a public database using companies’ public information and assesses how far the companies have come in their transitions compared with international goals under the Paris Agreement. This work is conducted with support from an independent academic partner, the London School of Economics. AP4 supports the TPI’s work and is a member of the TPI Steering Group

AP4 is also carrying on an active dialogue with political decisionmakers for the main purpose to create a global system for pricing carbon emissions. Such pricing would impactfully and immediately provide impetus to the climate transition by giving all economic actors a concordant incentive to reduce their carbon emissions. AP4’s CEO along with a number of other employees are active participants and speakers at various investor and sustainability conferences.

Reduce climate risks

AP4 applies low-carbon strategies in the global equity portfolio. These are optimisation strategies that reduce exposure in each sector to companies with high carbon emissions or fossil fuel reserves. The strategies are based on historical emission data as well as on forward-looking data on the extent to which companies’ operations are aligned with the Paris Agreement and how various levels of carbon pricing may impact companies’ margins. These parameters affect divestments in AP4’s entire internally managed global equity portfolio.

AP4 has established a thematic global asset management operation that analyse the most resource-intense sectors: energy, utilities and materials generation and commodities. Companies whose plans and targets are not considered to be aligned with the goals of the Paris Agreement have been divested from the portfolio. Since previously AP4 does not own shares in companies with significant undertakings in thermal coal or oil sand.

Investing in strong sustainability trends

AP4 continuously analyses sustainability trends and seeks out proactive investments in sustainability trends that contribute to the transition to a sustainable society and that also benefit from this transition. The ambition is to invest from both financial and sustainability perspectives. To be able to meet both of these requirements in a market where the offering is not known in advance, AP4 does not set any absolute goals for how much capital is to be invested thematically, however, the long-term ambition is that these will increase considerably over time. Climate-related thematic investments consist of new commitments in the unlisted portfolio, the build-up of a thematic portfolio of niche companies in the fundamental thematic management, and new investments in green bonds. AP4 continuously monitors the share of thematic investments in the investment flow and in the portfolio.

Corporate Governance as focus area

A responsible owner and investor conducts active corporate governance work, which encompasses dialogues with companies and other stakeholders in order to bring about positive change, exercise voting rights at general meetings and investor forums, take an active role in companies’ nomination committees, boards and investor bodies, and cooperate with other shareholders and investors.

AP4 has chosen Corporate Governance as a prioritised sustainability area in its asset management operations. Corporate governance is one of AP4’s most important tools for integrating sustainability aspects in its asset management, and it is considered to be important from a financial perspective for AP4 to make demands and wield influence as a long-term and engaged owner in an effort to contribute to the portfolio companies’ businesses and enable them to develop, improve and be conducted responsibly and transparently. Through its corporate governance work, AP4 has an effective tool to mitigate the sustainability risks that have been identified as being significant, that is, climate risks, human rights violations and corruption. Corporate governance is also an integral part of AP4’s asset management strategy and is believed to contribute to long-term favourable returns.

As a long-term and engaged owner, AP4 shall work in the best interests of all shareholders and individual companies. AP4 shall also advocate for development of quality and practice in corporate governance, and promote a well-working securities market.


Reference to International Standards

The AP Funds’ approach to dealing with negative impacts on sustainable development is based, among other things, on the conventions to which Sweden is a signatory. It also builds on other commitments and initiatives, such as:

  • The OECD Guidelines for Multinational Enterprises and Corporate Governance
  • The UN Global Compact (UNGC)
  • The UN Guiding Principles on Business and Human Rights (UNGP)
  • The Principles for Responsible Investment (PRI)
  • The Task Force on Climate-Related Financial Disclosures (TCFD)


Principal Adverse Impact (PAI)

The concept of Principal Adverse Impact (PAI) is part of the SFDR and is defined as: ”Negative, material or potentially material effects on sustainability factors that result from, worsen or are directly related to investment choices or advice provided by a legal entity’.

The SFDR framework contains 18 mandatory indicators for greenhouse gas emissions, biodiversity, water, waste and social indicators that should be taken into account (comply or explain).

In addition, there are voluntary indicators: 22 climate and other environmental indicators, as well as 24 indicators related to social and labour issues, respect for human rights, anti-corruption and anti-bribery issues.

In 2022, the AP Funds will determine which indicators the Funds will report on.


How AP4’s remuneration policy relates to sustainability risk integration

The AP Funds’ mission is to generate a high return while keeping risk low. The investment strategy shall be based on the impact on outgoing pensions and shall take into account the solvency requirements of the outflows from the Funds. It is important that Funds enjoy public confidence and act responsibly. The AP Funds must also manage the funds in an exemplary manner through responsible investments and ownership.

Both sustainability and responsible action are high priorities for the Funds. A proactive approach to environmental, ethical, social and corporate governance issues is the means to achieve the objective of a sound risk-adjusted return. Remuneration of employees should encourage high performance and behaviour in line with the AP Funds’ missions and comply with the Swedish Government’s guidelines for terms of employment in the AP Funds.