Peter Norman, executive president at AP7, the seventh Swedish national pension fund, which has AUM of SEK139bn (€15bn)

hile I do not think that pension funds have a duty to take climate change into consideration when making investment decisions, I think it is a wise move because their customer base will regard it as a problem and try to influence fund managers.

We do not know how concerned our members are about the topic as we haven't done any surveys but they constitute around one third of the Swedish population, the issue is heavily debated in Sweden, there is a momentum behind climate change and growing concern about it.

So climate change affects us as a pension fund because in all probability our members are concerned about it and may be of the opinion that the pension fund should be investing in a certain way.

It also affects us financially as it presents an opportunity to make good investments if you are proactive in this kind of area. I think every time we see a change in people's and investors' attitudes it creates new investment opportunities.

I do not know how active other pension funds have been but the financial markets are on the move and have started to design new products and risk profiles. That is why it is important to pay close attention to the markets.

I also believe it is financially wise to consider climate change and take certain measures, and that an asset manager can attract more customers by being proactive.

We include climate change in our portfolio in two ways. First, we have an ethical and environmental policy, which was implemented in 2000 and which is based on the UN's human rights conventions.

We try to identify companies that violate these conventions, which also includes environmental damage, for example. And through the integration of these conventions we apply SRI to our whole portfolio.

Second, we have currently around 6% of our holdings in private equity and for the past couple of months we have been scanning the market to identify some private equity firms or private equity funds of funds that invest in renewable resources, such as solar power and wind energy.

I anticipate a funds of funds solution
where we will have a universal approach and diversify heavily in order to limit the risk potential.

We are not ready to invest yet, although we are getting close to that point. We have not decided on the amount but we will definitely dedicate some money to that area. And it is too early for us to predict the returns.

So for the time being this is how we are focusing on climate change but I don't rule out other measures in the future.

David Russell, co-head of responsible investment at the Universities Superannuation Scheme (USS), which has AUM of around GBP30bn (€44bn)

limate change already affects the valuations of companies we invest in, particularly through the policy aspects of responding to climate change through, for example, the European emissions trading scheme. If the issue is not addressed there is no doubt that it will impact on the performance of certain companies and sectors and, as noted in the Stern Review, potentially the global economy, thereby making it more difficult for us to achieve the returns we require to pay our pensions.

Any issue that impacts on the value of companies or other assets in which pension funds invest should be assessed as part of the investment process. Because USS has an in-house investment team, we are able to integrate any resulting analysis into our decision-making processes.

We address climate change in a number of different ways. For example, we look at how the cost of carbon impacts the value of our investments. But we also look at the issue in terms of the broader response and have been active members of the Institutional Investors Group on Climate Change (IIGCC) since its launch in 2001. We also participate in the Carbon Disclosure Project and engage with EU and UK public policy makers.

We have to encourage the companies we invest in to look at the potential risks climate change poses, and to turn them into opportunities. The public policy response to climate change is creating a lot of investment opportunities in this area.

There are different ways to incorporate climate change in a portfolio: screening out certain sectors or a best in class approach in terms of managing carbon emissions, for example. However, this is not the approach that we take at USS.

We currently invest around $100m (€74.4m) in areas that see the upside from climate policy and manage the risk associated with it such as clean technology, renewable energies infrastructure and energy-efficiency, and this amount is likely to increase in the future. We do not have a separate SRI portfolio, but try to address issues such as this across all our portfolios and in different markets. We have been investing in renewable energy and clean technologies since 2000 and regard the area as a long-term opportunity set that will create the returns we need.

These investments also come with a certain level of policy risk because much of the return from clean energy investment is underwritten by climate change and carbon-related policy. On top of that there is a technology risk, as a lot of the technologies involved are new and unproven. By investing in funds that look at these issues you can spread that risk. However, just as with any investment in a relatively new sector, you take the risk into account and adjust your expected returns accordingly.

We expect the technology risk to diminish as these technologies mature, while climate change will continue to move up the political agenda.

Nada Villermain-Lécolier, head of responsible investment strategy at the French pension reserve fund, Fonds de Réserve pour les Retraites (FRR), which has AUM of around €32bn

RR's legislation does not say much about climate change. It only asks FRR to report how extra-financial factors are included in the investment strategy. The real driver behind our environmental strategy is the supervisory board, which in 2003 said that our SRI investment policy must be consistent with the universal values that promote sustainable economic, social and environmental development as well as good governance practice.

We hired a UK service provider to assess the environmental footprint of our entire €18bn global equity portfolio in late 2006. The results will be presented to the supervisory board this summer. This will help us identify the main sources of pollution due to companies we hold in our portfolio and whether we contribute to greater CO2 emissions by financing certain companies, for example, as well as helping to measure the costs.

Assessing the carbon footprint is important and may even become best practice for investors. FRR has supported the Carbon Disclosure Project as it is committed to improving the level of disclosure on corporate practice with respect to the environment, energy consumption and the impact of climate change on business activities. This is an important step towards reducing CO2 emissions because something that is not measured cannot be managed.

We will discuss the results with our asset managers, as all of our asset management is externalised.

Apart from assessing our carbon footprint, we have asked our asset managers who are actively managing European equities to account for the environment in their assessment process under certain conditions, or when building and managing the portfolio. This is worth €7bn, which is about 40% of all our equity holdings. The rest of the equity portfolio is either in small caps, where data is less reliable, or in indexed funds.

Some of the managers take as reference the global compact while others take our own SRI principles, which include the environment.

Our principle on this issue says that our managers should favour companies that promote and develop eco-friendly technology and renewable energy or that have a policy of reducing CO2 emissions and other greenhouse gases. They do this with the help of in-house analysis, environment analysts and the use of external databases. We are convinced that by integrating environmental issues in our investments and stock picking we will considerably reduce environmental risk. And investing in companies that look for long-term sustainable solutions will pay off in the long run.

We also think it is important to look at what the leading public European pension funds do in this area because there is no benchmark for the time being and it remains a pretty new phenomenon for most investors including FRR, who made its first investment in 2004.

In this context, FRR, as co-founder of PRI, the UN's principles of responsible investment, looks forward to closer collaboration in the area of climate change with its peers.

Interviews conducted by Nina Röhrbein

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