Exclusive: Eva Halvarsson on running ‘her’ $37bn pension giant AP2

From capital owners to asset managers and regulators, the international net zero community is gathering at ICGN in Stockholm this week.

One of the most prominent speakers this year is Eva Halvarsson, since 2006 the CEO of the Second Swedish National Pension Fund, AP2, one of the largest pension funds in Europe with more than £37 billion under management in virtually every asset class.

In between meetings and panel discussions, the board member of the UN-PRI (the United Nation´s Principles for Responsible Investments) sat down with Nero Zero Investor to discuss what is next for the investment veteran.

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At AP2, you head a pension fund with nearly SEK 400 billion under management in virtually every asset class and active in all parts of the world. How challenging is your job in the current ESG climate?

It is always challenging to work with sustainability issues but also very interesting and inspiring. We, as active owners, can really get involved and use our influence to try to make a difference –that's one of the things that makes our job so interesting and important!

What would you say is the biggest challenge currently for pension funds and asset owners?

The biggest challenge that both we as capital owners and society as a whole have, is the climate crisis and how we can solve it. Because if we can't solve it, then the other issues are secondary. There is also a strong systemic connection between climate change, biodiversity and human rights. The climate issue has a potentially wide-ranging impact on the living conditions of future generations, and thus on AP2’s return and goal fulfilment. It therefore has a particular focus for the Fund.

Many pension funds and investors increasingly demand more detailed ESG data, so they can understand and monitor sustainability efforts better. Do you recognise that trend?

Yes, I do. We need relevant data to be able to take the right decisions as we integrate sustainability into our analysis and decision-making processes. But it is also important that we as investors demand relevant data, because otherwise the companies will report on far too many indicators. I think the trend towards more aligned reporting standards will be good for both companies and investors.

Let's move on to the current investment climate. Some believe that long-term sustainability goals risk being sacrificed in response to near-term challenges posed by energy shocks, supply chain disruption, elevated inflation and the risk of recession. Aviva Investors CEO warned against this. Do you share that sentiment?

Yes, I share it, but I also understand the companies' reality, that in these times it can be extremely difficult to be persistent and have the energy – and courage - to pursue long-term sustainability issues. However, I believe that for those companies where sustainability issues are part of their long-term strategy, this does not change because we are now entering a recession. At AP2, we assume that sustainable companies are the ones that are the best investments in the longer term and this is what is important to us with our long-term investment horizon.

He also said the industry's focus should be on the transition to a low carbon economy and reversing nature loss. Are those key priorities for AP2 too?

Yes, both of those areas are key priorities for AP2. Our goal is for the entire portfolio to be in line with the Paris Agreement. Since Sweden has undertaken to achieve the more ambitious target of net zero emissions by 2045, AP2 believes this goal should apply to the Fund as well.

Let's move on to something else: Biodiversity is relatively new for AP2, isn’t it?

Yes, in 2022, biodiversity was added as a new focus area for our sustainability work. There is a strong and complex link between biodiversity and the Fund’s focus areas of climate and human rights. AP2 has defined the above as a long-term goal for its work with biodiversity. This goal is consistent with the global commitments that are required, alongside reduced emissions, to limit global warming to 1.5 degrees and to preserve critical ecosystems.

Finally, let's briefly zoom in on impact investing. How much attention would you say AP2 and the industry pay to this?

Over the past year, we have looked at how we can understand and measure the impact of our investments on people and the environment, using the global goals as a reference. The evaluation has had two aims, first to be able to implement targeted sustainability investments in such a way that the Fund is able to set goals, measure and follow up the expected positive impact of these investments. And also to understand and be able to manage impact risks and opportunities throughout our listed portfolio.

And in practical terms?

We have during last year developed a framework for identifying those investments that we define as targeted sustainability investments. The Fund’s targeted sustainability investments must satisfy a number of criteria linked to the UN Sustainable Development Goals. The market value of the Fund’s targeted sustainability investments for 2022 was over SEK 35 billion, which includes sustainable infrastructure, Swedish listed cleantech shares, timberland that satisfies ten criteria for sustainable timberland investments, certain private equity funds with a clear focus on sustainability, green bonds and social bonds. For these investments, the estimated impact is assessed as part of the investment decision and KPIs relating to the impact are followed up during the Fund’s ownership.

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