Climate change is estimated to have a significant impact on the AP Funds’ assets, constitute a long-term systemic risk and, if not halted, to have a negative impact on the living conditions of present and future generations. Based on the climate convention signed by Sweden, the Council on Ethics and the AP Funds are working towards a transition to a low-fossil society and for the goals of the Paris Agreement to be achieved, which means that the global temperature increase must be limited to well below two degrees Celsius. To achieve this, net emissions must be zero by around 2050.
In today’s society, most industries and companies are exposed to and dependent on fossil energy. Combustion of fossil fuels is the dominant cause of climate change. Exposure is both direct (production and sale of fossil fuels) and indirect (everything that is manufactured and powered by fossil fuels). The risks and opportunities arising from the transition differ between sectors and companies and are affected by how the transition is implemented.
Because the temperature increase depends on the volume of greenhouse gas emissions over time, it is important that emissions are reduced as soon as possible. Climate Action 100+ is a major global initiative that works to encourage large listed companies to reduce their emissions and to increase their reporting on climate risks and opportunities. An initiative that both the Council on Ethics and the AP Funds are involved in.
How is the Council on Ethics working to address climate change?
Collaboration is needed in order to make a transition to net zero. In 2020, the Council on Ethics, within the framework of Climate Action 100+ and together with the Institutional Investor Group Climate Change (IIGCC) and Transition Pathway Initative (TPI), has focused on bringing together the companies needed to develop ways to achieve net zero emissions in energy-intensive sectors. This requires collaboration between companies, investors, decision-makers and other stakeholders. The aim is to jointly draw up practical action plans for different sectors and then implement these. The selected sectors are: Oil and gas, heavy transport, steel, cement and shipping. The work method used to create the roadmaps is roundtable discussions in which the parties concerned participate. An initial roundtable discussion for the oil and gas, heavy transport and steel sectors was held in 2020. Work on developing transition plans for these sectors will continue in 2021.
The Secretary General of the Council on Ethics is in charge of this work together with the Church of England’s pension fund.
How are the various AP Funds approaching the climate issue?
The four AP Funds, together with more than 600 investors, have signed a “Global Investor Statement to Governments on Climate Change”. The investors support the Paris Agreement and by making this joint public statement want to influence governments to take the necessary measures to achieve the objectives of the Paris Agreement. According to the statement, investors are worried that governments are not doing enough because the current commitments made by countries, as described in the Nationally Determined Contributions (NDC), overall are not sufficient to achieve the goals of the Paris Agreement and will thus lead to an unacceptable increase in the global average temperature.
In their asset management, the AP Funds take into account risks and opportunities arising from climate change and the transition to a society without net greenhouse gas emissions. The four funds each conduct their own analyses and assessments based on the funds’ various investment strategies. Each AP Fund is responsible for its own decisions regarding exposure to fossil energy, whether direct and indirect, and other climate risks.
CLIMATE ACTION 100+
Climate Action 100+ is a five-year global climate initiative launched in 2017 and is supported by more than 500 investors with assets under management of SEK 40,000 billion. The initiative has dialogues with 161 companies around the world. These companies have been selected because they have the highest total carbon dioxide emissions (Scope 1-3, i.e. both the companies’ direct emissions, emissions from purchased electricity and all other emissions from purchases and use of products). The purpose of Climate Action 100+ is to:
- improve the companies’ corporate governance in terms of climate risks and opportunities;
- reduce their carbon dioxide emissions in accordance with accepted climate science; and
- report in accordance with the TCFD (Task force on Climate related Financial Disclosure), which is an international framework for climate reporting.
In 2020, all companies were analysed on the basis of how well they live up to these requirements. The results will be published in the first quarter of 2021. Visit http://climateaction100.org/ for more information.
In the Paris Agreement, which was concluded in December 2015, 195 states, including Sweden, pledged to keep the global temperature rise “well below 2 degrees Celsius” and to “strive to limit it to 1.5 degrees”. In order to achieve the goals of the Paris Agreement, each country decides on the “Nationally Determined Contribution” (NDC), which shows which emission reductions and country-specific activities are to be implemented. Following the publication of the UN Climate Panel’s special report on the effects of global warming of 1.5 degrees Celsius in 2018, it has become even clearer that rapid and forceful transition is required. To stabilise the climate, net emissions must be zero by around 2050. Because the temperature increase depends on the volume of greenhouse gas emissions over time, it is important that emissions are reduced as soon as possible.
The Swedish Parliament has decided that Sweden must achieve net zero emissions of greenhouse gases by 2045.