Climate Investing

11Absolutely Sustainable Investing Across Asset Classes with Paris-aligned Benchmarks: An Application to AP2

11.1. Introduction

Absolutely sustainable investing means reducing a portfolio’s greenhouse gas (GHG) emissions in line with the 1.5-degree trajectory of the Intergovernmental Panel on Climate Change (IPCC). This instructs a portfolio to target Net Zero GHG emissions in a disciplined process, which requires the portfolio to be not only relatively better than its benchmark in a given year in time but also to be better than itself last year through at least 7% annual reductions in absolute GHG emissions. EU Paris-aligned Benchmarks and EU Climate Transition Benchmarks represent such absolutely sustainable investing (Hoepner et al. 2019a, 2019b). This chapter will introduce the former concept and describe how Andra AP-fonden (AP2 or the Fund, hereafter) is ensuring that its liquid portfolio follows the absolutely sustainable investing concept.

AP2 is one of four buffer funds (AP1-AP4) in the Swedish state pension system. AP2’s main objective is to be of maximum benefit to the pension system while managing its funds in an exemplary way through responsible investments and responsible ownership without compromising on the main objective.

Sustainability is a part of AP2 investment beliefs. AP2’s sustainability work aims to create and protect value and to contribute to sustainable development based on an economic, environmental and social perspective. By including sustainability ...