AP4 and Fonds de Réserve pour les Retraites (FRR) have assisted MSCI with the development of a new low-carbon equity index that both investors said could be the basis for a new €1bn portfolio.
The new benchmark, the MSCI Global Low Carbon Leaders index, is based on the firm’s existing All Country World index and seeks to take into consideration carbon emissions and fossil fuel reserves.
The company said in a statement: “While selecting companies with a lower carbon exposure, the indexes aim to maintain a wide and consistent market exposure by minimising the tracking error compared with the performance of the parent standard indexes.”
French asset manager Amundi also worked with MSCI and the two other institutions to develop the index.
AP4’s chief executive Mats Andersson predicted that low carbon investments would become “more popular and mainstream”.
“AP4 plans to invest with its partners up to €1bn in these new low-carbon investments,” he added.
“Combined with a carbon footprint disclosure, we are confident this approach can offer an alternative source of return while working for the public good.”
The Swedish buffer fund has gradually been shifting 10% of its global equity exposure into low-carbon shares, and wishes to avoid “companies that have the greatest and most negative impact on the environment in terms of carbon dioxide”, according to its most recent half-yearly report.
The report added that it was AP4’s “ambition” to shift its entire equity portfolio towards a low-carbon strategy.
As of the end of June, the fund had SEK276bn (€30bn) in assets, with 41% in global equities and a further 19% in Swedish stocks.
Yves Chevalier and Olivier Rousseau, members of the executive board of the €36.6bn FRR, added that low-carbon indices were a “promising avenue” for making companies aware of how important investors consider issues surrounding their carbon footprints.
“We see them as a new, pragmatic and powerful addition to FRR’s climate toolbox,” they said, pledging to allocate up to €1bn to the strategy.
In a further statement on its website, FRR highlighted its long-lasting commitment to sustainable investing and noted that it had been measuring the environmental impact of its portfolio since 2007.
In the wake of the move, it also undertook a study to assess how global warming would affect its portfolio, projecting the impact of climate change on portfolio returns through to 2040.
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