Alecta, Sweden’s biggest pension fund Alecta, has developed a calculator to determine how carbon dioxide prices could affect the market value of companies.
The SEK1trn (€98bn) pension fund said the tool, made available on its website, was based on data from its climate risk report and showed how the increasing price of carbon dioxide emissions affected pension managers’ assets.
Carina Silberg, head of corporate governance and sustainability at Alecta, said: “The calculation tool we have developed is, as far as we know, the first of its kind.”
The pension fund said the future cost of carbon emissions was usually not included in the valuation of companies today, which risked companies being overvalued, adding that valuations would vary widely depending on the specific company and sector.
Alecta said the new calculator took into account not only of the current cost of carbon emissions, but also how much these prices would need to increase in order to meet various climate targets in the future.
The pension fund mentioned that other factors needed to be taken into account in forecasts, such as who would bear the cost of emission – the company itself, its customers or suppliers – and how easy it would be for the firm in question to reduce its emissions.
“It is a very complex matter, but very important for our savers’ pensions,” said Silberg.
Alecta said its climate risk report showed that it was difficult to obtain the data needed to correctly assess companies’ emissions, and that the prices of carbon emissions recommended by various international organisations to achieve climate goals varied widely, ranging from $100 (€85) to $1,000 per tonne.
“The cost of CO2 emissions for a company in the EU is expected to increase in stages, to €230 per tonne of carbon dioxide equivalent in 2040,” Alecta noted.
The fund said this enabled it to calculate what the current emissions for a company working in a certain sector would cost in the future, based on that business’ current average emissions.
Länsförsäkringar excludes oil and gas exploration and production
Sweden’s Länsförsäkringar announced it has excluded all firms taking part in the exploration and production of oil and gas, resulting in the divestment of 15 firms from its portfolios.
The pensions and insurance group also said it had also identified over 220 companies in which it would not invest in the future, adding that it had previously excluded more than 90 firms whose operations were mainly fossil fuel extraction and energy production from coal.
The blacklistings apply to the group’s own funds and investment portfolios in its life insurance, unit-linked funds and general insurance operations.
Kristofer Dreiman, head of responsible investments within asset management in Länsförsäkringar’s life insurance business, said: “We started phasing out coal companies as early as 2015 and have since gradually reduced our exposure to fossil fuel companies as a result of the financial and climate-related risks that these companies have.”
He added that many companies in the energy sector had seen losses or reduced profit margins for a long time as a result of price wars, but that this was also due to reduced demand in connection with the COVID-19 pandemic.
Länsförsäkringar said the new climate criteria it had adopted meant the exclusion of any firms generating over 50% of their turnover from the exploration and conventional extraction of oil and gas, as well as those where more than 5% of turnover came from unconventional oil and gas extraction — oil sands, fracking and extraction of gas from coal, for example.
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