Swedish Funds Managing $250 Billion Get Slammed for ESG Record

(Bloomberg) -- Sweden's state-backed pension funds have “failed” to live up to a key metric when it comes to protecting the planet, according to the country's biggest climate organization.

The AP funds, which oversee about $250 billion in assets and have all committed to environmental, social and governance goals, continue to invest in fossil-fuel companies that are contributing to a dangerous rise in temperates, the Swedish Society for Nature Conservation said in a report on Friday.

“Not a single one” of the fossil-fuel companies held by the AP funds has set climate goals that live up to the Paris Agreement, the group said.

The funds have been able to hide behind a lack of transparency, allowing them to tout sustainability goals without taking real steps to fight for meaningful change, according to the group. The asset managers often cite “dialogue,” but it's “difficult to know” how much of a difference such an approach actually yields, the non-profit group said.

The comments mark the latest clash between a financial industry keen to tout its ESG credentials, and climate protection groups who say their strategies do little more than pay lip service to the idea. That's as the industry stretches the definition of sustainability to include companies that pollute now, but say they have plans to cut their emissions in the future.

Despite cuts in the AP funds' holdings of fossil-fuel companies last year, they still have about $1.8 billion invested in 66 of the world's 200 biggest polluters, the Swedish Society for Nature Conservation found.

Read More: Bill Gates Shows How Hard It Can Be to Divest From Fossil Fuel

The potential to turn companies that make a living from fossil fuels into sustainable businesses is “very small,” Karin Lexen, secretary general of the non-profit organization, said in the report. So investors that claim to have an ESG agenda should simply abandon such holdings, she said.

The group said the two AP funds that are most exposed to polluters are AP4 and AP7. But the funds say the criticism is unfair. They argue that polluters need a bridge toward a cleaner future, and that cutting them out of portfolios would be counterproductive.

AP7, which invests directly and indirectly in more than 3,000 companies globally, said active ownership remains a more effective strategy than exclusion.

“Of course, it is not as if all problems are solved, not in the climate issue nor in any other sustainability issue, but I think that is an unrealistic expectation,” AP7 spokesman Johan Floren said. “The good news is that investors are collaborating more than ever on these issues.”

He points to AP7's efforts to prevent fossil-fuel companies from engaging in the kind of political lobbying that tends to stunt climate policies.

AP4, which is a long-term investor in Swedish and global equities, has halved the portfolio's carbon footprint over the past decade, according to Tobias Fransson, the fund's head of sustainability.

“AP4 has ambitious climate targets to halve emissions once again by 2030 to reach net zero emissions by 2040,” he said. It's “chosen to continue to own energy companies with goals and plans that we believe have the potential to be in line with the Paris Agreement, and which also have plans for extensive and increasing investments in renewable energy.” He said they'll continue to engage in “dialogue with the energy companies.”

©2021 Bloomberg L.P.