Sweden’s AP1 to raise allocation to ‘real assets’ to combat climate change

Leading institutional investor absorbs Mercer report

Första AP-fonden (AP1), the SEK221.6bn (€24.3bn) Swedish buffer fund, has indicated it will shift its portfolio towards “real assets” – property, farmland, timber and infrastructure – to try to deal with the investment implications of climate change.

It is taking on board the recommendations of the groundbreaking report from consulting firm Mercer, Climate Change Scenarios – Implications for Strategic Asset Allocation, that was released earlier this year. AP1 was one of 14 international institutional investors to participate in the project.

“Climate change could have far-reaching implications for long-term investors,” the fund says.

“The findings in the climate report have strengthened the Fund’s conviction in the necessity of raising the share of real assets in the portfolio, for example through investments in real estate, agricultural land, timberland and infrastructure,” AP1 says in its new first-half report.
The Mercer report suggested institutions shift up to 40% of their assets into “climate sensitive” assets, defined as infrastructure, private equity, real estate, timberland, agriculture land, carbon, broad and sector focusedsustainable equities and efficiency/renewable listed/unlisted assets.

When the report was published, AP1’s Managing Director Johan Magnusson said it had provided better insight as to the impact of climate change on asset classes and long-term performance.

AP1 is already a member of the Europe-based forum, the Institutional Investor Group on Climate Change (IIGCC).

Additionally, AP1 says that it participated and voted at 28 Swedish annual general meetings in the first six months of the year. It voted at 295 AGMs outside Sweden. A full ownership report will be published later.

The report reveals also that the fund sold off SEK11bn of equities in favour of fixed income in the period – lowering its total equity exposure to 57.8%.

On July 1, the fund appointed MD Magnusson to the additional role of Chief Investment Officer. It also created an ‘exposure unit’ to oversee its exposure to listed assets and handle reallocation “within and between asset classes”.