Nordic Investor asked AP1’s Head of Sustainable Value Creation, Magdalena Håkansson, to comment on selected aspects of its ESG policies, which use a mix of in house and external analytics.
We also asked Tina Rönnholm, Portfolio Manager External Management, to comment on how AP1’s ESG policies apply to external mandates. AP1 likes managers to integrate ESG into the investment process and do in house ESG research.
ESG and Performance
The Journal of Sustainable Finance & Investment published a meta-level study, which looked at 2,200 studies and found a positive link between ESG and performance, in 63% of cases?
Magdalena Håkansson: When assessing ESG studies and their relevance, it is important to bear in mind that there is not one universal definition of ESG. Different studies will use different data sets. At the same time, some ESG factors would be more relevant for some investment strategies than others. The meta-study, along with many since, often indicate a positive or neutral link between ESG and performance. It’s perhaps not surprising, given the increased awareness of sustainability in general and greater expectations on companies to manage their operations in a responsible way. Shifts in society, technology developments and changed environmental conditions, can have a material impact on a company’s value chain.
There are many examples of where mismanagement of environmental, social and governance aspects have had a significant negative impact on share price. We also believe companies that manage relevant risks and opportunities, and at the same time are resource- efficient, are likely to be more profitable in the long term. Therefore, identifying which companies have sustainability embedded in their business strategy and ongoing operations is just as important.
AP1 has an in-house sustainability team and also uses external firms. Which types of external firms do you work with to inform your ESG policies?
Magdalena Håkansson: We use a combination of external data providers to support our work on integrating ESG aspect into our investment process, as well as for screening, engagement and exclusions purposes. Different sources are used for different purposes and often in combination. One solution, which monitors and assesses controversies serves as an input to our engagement and exclusion decisions. Other solutions provide insights on ESG aspects that are material for a company and how the company is managing and performing in relation to different aspects we believe are important. Using different data sources, helps us make more informed investment decisions.
Carbon reporting and green bonds
You have a low carbon approach, and publish a carbon footprint. What about methane gas, which makes a larger short-term contribution to climate change?
Magdalena Håkansson: Our published carbon footprint includes greenhouse gases as defined by the Greenhouse Gas protocol (GHG Protocol). This includes methane gas emissions which are converted into CO2e and reported as part of companies’ carbon emissions data.
Are any external providers helping you to measure the carbon footprint?
Magdalena Håkansson: We have access to carbon data and calculation tools from external providers. Although we see an increased uptake of companies reporting carbo