AP7 moves €290m from ‘Paris-violators’ to SDG-aligned stocks

Pension fund awards green mandates after exit from firms ‘in direct violation of the Paris Agreement’

Swedish pension fund AP7 has reallocated SEK3bn (€290m) – divested from companies “blacklisted” over climate misalignment – to sectors that support the Sustainable Development Goals (SDGs), awarding two new mandates as part of the overhaul.
It has selected KBI Global Investors and Impax Asset Management to run two active “green impact equity” mandates worth SEK1.5bn (€150m) each.
Johan Florén, Head of ESG at the SEK460bn (€45bn) fund, explained: “Our thought was that we want to put pressure on these companies and change their behaviour through blacklisting…then we decided to take the same amount of money and invest it in green impact equity”. 
The new mandates include one dedicated to water – awarded to Ireland-based natural resource specialist KBI Global Investors – which will invest in companies that support the SDG 6: “Clean Water and Sanitation – Ensure availability and sustainable management of water and sanitation for all”.
Sustainable water investing is a key focus for AP7. Last year, RI revealed that it was part of a six-strong SDG working group – including fellow state fund AP3, pension insurer SPP, asset managers Storebrand and Skandia and the Church of Sweden – looking at how to invest more in water projects and measure impact in the sector. The group was part of a wider initiative by Swedish aid agency SIDA, which saw numerous investors in the country get together to address the implementation of different SDGs.
The second mandate, awarded to London-based SRI specialist Impax Asset Management, will invest in companies that support SDGs related to climate and the environment more broadly.A key aspect of the mandates is the creation of bespoke metrics to measure the sustainability impact of investments – something that is notoriously difficult to do.
Florén told RI: “Lots of investors and asset managers are looking at this challenge right now and trying to come up with solutions, we don’t expect to solve it, but we want to be a part of the process”.
RI reported last year that, as part of its work on SDGs, AP7 had been assessing different impact measurement strategies already available, but had found the market to be “very immature”, and too focused on output – the projects or companies financed – rather than the ultimate impacts on society.
AP7 took the bold decision to “blacklist” companies that “act in direct violation of the Paris Agreement” – including companies such as US oil giant Exxon and Russian energy firm Gazprom – last June.
The new portfolios, which are expected to take over a year to fully invest, will each hold around 50 listed companies, most likely mid-cap. RI was told that investee companies will not be limited to those in AP7’s current benchmark, the MSCI All Countries World Index. 
RI was told that the new “long-term” mandates – which received 23 applications in the tender process – would run for between five and ten years.
The SDGs have also been an increasing focus for KBI, who recently unveiled a new SDG impact measurement tool that awards a positive, neutral or negative impact score based on the percentage of an investment portfolios’ revenue that is aligned with the SDGs.