AP4 shuns 50 new firms in first move to comply with Swedish ESG law

Swedish buffer fund exits nuclear weapons and oil sands in bid to be ‘exemplary’

Fjärde AP-fonden (AP4) has blacklisted 50 companies linked to nuclear weapons and oil sands because of a new sustainability law passed in the country this month, reallocating SEK3bn (€293m) of capital as a result.

Sweden has just introduced a rule requiring the country’s four main public pension funds – AP1, AP2, AP3 and AP4 – to behave in an ‘exemplary’ way on ESG. While most of the funds say the changes will not have any major, immediate effect on their behaviour, AP4 has become the first to explicitly exit stocks in direct response.

“AP4 now increases its ambitions within sustainability based on the new law regarding exemplary asset management, and has decided to divest from companies related to nuclear weapons and oil sands,” it said in a statement.

It has identified 45 companies in the nuclear weapons space and a further five in oil sands that will be added to an exclusion list.

Tobias Fransson, Head of Strategy and Sustainability at AP4, told RI that the fund was “invested in many of these companies” until now, so the decision was more than just a political gesture and has resulted in SEK3bn of divestment. The money has been reallocated within the portfolio, he confirmed.The decision was driven by a broad consensus by the AP funds that the new instructions to be ‘exemplary’ will involve looking more deeply at the investment implications of the various conventions and treaties that the Swedish government has signed. Previously, the expectation has been to take a literal approach to the pledges, but a number of AP funds have told RI in recent weeks that this will now be deepened to acknowledge “the spirit, not just the wording” of the conventions.

In this instance, AP4 argued that the best-practice approach for investors interpreting the Non-Proliferation of Nuclear Weapons Treaty is to exclude companies involved in the industry because the Treaty’s ultimate aim is to eliminate all nuclear weapons.

“The current upgrades and modernisations of nuclear weapon systems are not aligned with the intention of long-term disarmament as expressed [in the Treaty],” AP4 said.

In addition, the SEK367bn fund will exit oil sands on the basis that it is both “exemplary and commercial” to support the transition to a low-carbon economy. Companies with more than 20% of their turnover coming from oil stands will be excluded.

AP4 already excludes companies with 20% or more of turnover from thermal coal, as well as screening out those involved in the production of tobacco, mines, cluster bombs and cannabis. This latest move brings the number of firms on its exclusion list to nearly 100.