This is according to the €34 billion Swedish pension fund AP4’s CEO Mats Andersson.
Speaking to Modern Investor in Stockholm, Andersson, who is going to leave his executive position at the scheme in autumn after more than 10 years in service, said that intuitions should adopt clear sustainable and forward-looking policies to curb global warming.
‘Climate change is the biggest risk we’re seeing at the moment as it’s the risk of permanently losing capital, ‘he said.
‘Ten years ago, I thought that ESG investing meant also sacrificing part of your returns. I completely changed my mind. In the long term, sustainable investments enhance your returns while lowering the risks.’
By the end of 2015, AP4 decarbonised half of its equity portfolio and lowered its carbon footprint by 30%.
Andersson said the fund gained 200 basis points since the inception of the equity decarbonisation.
‘The next step is to extend ESG on fixed income with some innovative practices. How? I don’t know. But five years ago we didn’t know how to act with equities, and look how far we have gone,’ he said.
Fully sustainableAs an example of some successful ESG investments, Andersson cited two Robeco SAM’s funds as well Generation Investment Management, the asset manager funded by Al Gore and David Blood.
The RobecoSAM Global Child Impact Equities invests in companies that support children’s rights and welfare, while the RobecoSAM Global Gender Equality Impact Equities focuses on a concentrated portfolio of global firms that promote gender diversity and equality.
Elsewhere, AP4, which manages 80% of its assets in house and outsource the remaining 20% to third party managers, is invested in Generation IM’s Asia listed and private equity fund.
‘Whatever we have done in the ESG field has proved brilliant, even if it's still very early days. By 2020, AP4 should be fully sustainable in whatever it invests in,’ he said.
Swedish real estateAP4 has started investing more decisively in real estate three years ago, focusing on direct property investments in Sweden.
At present, real estate represents the 15% of the overall portfolio with a mix of residential (the majority) and commercial property.
‘We want the least layers possible between us and the tenants. We focused on Sweden as it’s the real estate market we know best,’ he said.
Elsewhere, the pension fund has built a €2.2 billion core Swedish equity portfolio which consists of 20 stocks that have delivered very strong returns.