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AP2 began in 2013 to analyze financial climate risks for fossil energy companies and then continued with companies generating electricity from coal. An important starting point for this work was that the climate risks the companies face are not correctly priced by the market. The Fund's work to analyze financial climate risks for these sectors is focused on regulatory risks.
As AP2 has implemented an equity and credit index that is in line with the EU Paris-Aligned Benchmark (PAB), the Fund has completed this analysis of financial climate risks for fossil energy companies and companies generating electricity from coal. AP2 sees great value in adapting its indices to the Paris Agreement based on a scientifically based framework established by the EU.
The purpose of these regulations is not only to reduce greenhouse gas emissions and reach net zero emissions by 2050, but also to benefit companies that make a positive contribution to climate change. The fact that AP2 has now implemented PAB means that the Fund does not invest in companies that have more than a certain share of their sales from coal, oil and/or gas, as well as power companies where more than 50 percent of the revenue comes from burning fossil fuels. The maximum share for coal is 1 percent, oil 10 percent and gas 50 percent.
This has resulted in a total of 250 companies no longer being included in the Fund's portfolio. The framework also contains requirements for the index's carbon footprint, which must be a maximum of 50 percent of the corresponding market-weighted index. In addition, the footprint needs to be reduced by 7 percent per year with the goal of achieving net zero emissions by 2050. For AP2's portfolios for global equities and corporate bonds, the reduction was 70 percent when Scope 3 emissions are taken into account in accordance with the criteria for PAB.