Sweden’s AP4 partners with Northern Trust on low carbon emerging markets fund

It’s hoped other investors will sign up

Fjärde AP-fonden (AP4), the SEK241bn (€27.6bn) Fourth Swedish National Pension Fund, is to invest in a new emerging markets equity fund created by custody and asset management giant Northern Trust comprising only companies with lower carbon emissions and lower fossil fuel reserves.
AP4 says it believes that current company valuations fail to reflect the rising costs of fossil fuels. The new fund is designed to position its global equity portfolio to benefit from the transition to a low carbon economy.
The initial investment in the fund will be made in 2013 and will replace a large share of AP4’s current exposure to this region. The investment will complement AP4’s previous carbon-efficient investment in the US equities portfolio.
The Northern Trust Emerging Markets Custom Low Carbon Dioxide Equity Index Fund has been set up by Northern Trust’s asset management arm as a sub-fund of an existing Irish UCITS umbrella fund known as Northern Trust Investment Funds plc.
It will be made available to other institutional investors in Europe in accordance with pan-European investment fund rules known as the UCITS Directive.
It’s claimed the fund will offer exposure to emerging markets whilst potentially lowering long-term portfolio risk by excluding both companies with high emissions and extensive reserves of fossil fuels – in addition to incorporating other environmental, social and governance (ESG) factors.“With few exceptions, carbon dioxide is now widely recognised to have a negative impact on the climate,” said Mats Andersson, CEO at AP4. “We believe that greenhouse gas emissions are associated with higher costs in the long term and that consequently companies with higher carbon footprints will be valued differently in the future.

“Hopefully this will also increase the pressure on companies to lower their carbon dioxide emissions.”

“Hopefully this will also increase the pressure on companies to lower their carbon dioxide emissions.”
Earlier this year Northern Trust teamed up with MSCI ESG Research and Institutional Shareholder Services to create the first emerging markets custom index to incorporate environmental social and governance screens.
“Combining return seeking assets with ESG criteria is a trend that continues to grow as institutional investors realise they can simultaneously incorporate environmental criteria into their portfolios while gaining the desired exposure,” said John Krieg managing director for Northern Trust’s asset management arm in Europe, Middle East and Africa.
Chicago-based Northern Trust manages more than $45bn in socially screened assets. Overall, it has $5trn in assets under custody and $803bn under management.