Towards the end of last year, Per Bolund, the Swedish government’s Minister for Financial Markets who represents the Green Party, wrote a letter to the UK’s Financial Times on sustainable investment, revealing government plans to analyze what investors need to make an informed sustainable investment fund choice.
The letter came in the context of increasing activity from the country’s AP funds on climate change. AP4 has demonstrated the value of hedging climate risk, while AP2 has very publicly divested from a range of fossil fuel companies. On top of this, AP1, AP3 and AP4 have all signed up to the Montreal Pledge, which commits them to measuring and disclosing their portfolios’ carbon footprint. And Nordea, one of Sweden’s biggest asset managers, has started disclosing the ESG credentials of all its funds and lobbying for others to follow suit.
Bolund, who took over from former pension executive Peter Norman in the post last October, spoke to Responsible Investor about the Swedish government’s policy on sustainable investment, its concerns about stranded assets and its work on developing a global carbon price.
RI: Tell me more about the report the government plans on sustainable investment. What is the timeline and what do you hope to achieve?
Bolund: We are now in the process of hiring someone to do the research and write a report. The idea is to have the report ready during 2015. When the report is advanced there is an opportunity for us to make changes in legislation. In Sweden there is a demand for higher transparency from funds and I think this is a really important step. The idea is to look at the general market for funds to see how we can improve information on them, but also look at the funds that are already focused on sustainable investments alongside this too. We also want to start a discussion in general society about the financial sector’s responsibility when it comes to environmental and social impact which I think has been discussed much too little in society before.
You have ministerial responsibility for Sweden’s AP funds. What has been your communication with them around this?
We have been very firm from the government in informing them that we would like them to have a larger degree of transparency to their customers. There are two main reasons for this. Firstly, we know that the Swedish population is quite concerned about the climate change issue and wants to feel secure that their pension fund and their investments are not going to destroy the world in which they will be retired in the future. The idea of pension funds is to give us a secure future both in the economic field but of course you need the environment to carry on a future.
Our other concern is: we are well aware that having a high climate impact in the future will also be a great financial risk and make for a more insecure investment. For investors in the AP funds it is really important to have this type of information, to be aware of the risks in these types of investments. Now we are on the verge of having all the AP funds being fully transparent when it comes to their carbon footprint. It is a very good development that the public funds are making as it will make demands greater in the private market for disclosure on climate impact and fossil fuel exposure.There are plans to merge the AP funds. Will new ESG requirements come alongside this?
We are in the process of transforming the AP funds system in Sweden. The idea right now is to reduce the number of funds from six to three, and to have a larger degree of co-operation between the funds as well so that you can have more large-scale advantages. In this process we will look at the ESG responsibilities of the funds, and whether to make the regulations stricter when it comes to what investments can be made from an ESG standpoint.
Recently the Norwegian government looked at whether its state fund should divest from fossil fuels. Is Sweden considering similar action?
I have had personal meetings with the leadership of all the AP funds and I have been very clear in my demands that they should focus on looking at the risks of having a large part of their energy investments in fossil fuel companies. I have been very happy to notice that they are already looking at these issues and seeing that if we are going to have a sustainable environment in the future, you have to leave a large amount of fossil fuels in the ground.
Last week you tweeted about a UCL report warning that most of the world’s fossil fuels reserve will have to remain unburned to maintain global warming below a 2 degrees target….
It is an interesting report and it is a clearer case about the choice you have to make. We’ll either have a sustainable climate in the future, or you can continue extracting fossil fuels in the way we do today. This has to be involved in the evaluation of fossil fuel companies. But as a whole on the financial market that’s something that hasn’t been done so far. There is a risk that this is not being taking enough into account by financial markets. But I think the science is starting to seep into the financial sector slowly. My hope is that further requirements and negotiations, and the meeting in Paris in 2015, will make this even stronger.
What are your views on a global carbon price? Is it likely soon?
In Sweden we already have a carbon tax that is the highest in the world and one of the reasons we don’t have a fossil fuel industry. On a European level, we have the carbon trading system that has problems at the moment with very low pricing but that can be changed, and is something this government is involved in. On carbon pricing on an international and national level of course that would be an important step to decrease the value of fossil fuel companies and open up the possibilities for renewable energy companies. So the Swedish government is working on both a national and international level to improve the possibilities of having in the future a global price.
How developed is the sustainable investing landscape in Sweden?
There have been developments. You have a larger degree of choice to make an environmentally and ethically sound investment. But, I think there is still a problem that these companies don’t have some kind of third-party evaluation on funds. It is mostly done by the funds themselves, who state whether they are sustainable or not. We are also having roundtable discussions about sustainable investments and funds to see what are the thresholds and problems of developing and taking a larger part of the market. We are working around a lot of these issues because we feel a great need for the finance industry to develop its ethical and environmental policy towards investments.