Sustainability risks
Sustainability risks are taken into consideration in our investment decisions
At Första AP-fonden, we are aware that both we and the companies in which we invest face different types of risks that we, as responsible investor, need to identify and manage. Sustainability risks is one example of such risk and is a key element in the Fund’s risk management.
Sustainability risks are part of the Fund’s financial and reputational risks and are a key element of the Fund’s overall risk management. We believe that well-managed companies that maintain an integrated approach to identifying and managing strategic material risks are more profitable over time. As a responsible investor and owner, we also have to consider the adverse impact on people and the environment caused by the companies in which we invest. Taking material sustainability aspects into account in our investment decisions, and in our stewardship, provides more of an understanding of future risks and opportunities that may affect the expected returns and assessed risk level and our ability to manage such risks and opportunities.
”Considering material sustainability aspects provides an increased understanding of future risks and opportunities that may affect the expected returns”
Sustainability risks in investment decisions
Sustainability risks are taken into account in the investment process for all asset classes. We rely on various types of ESG data and our contacts with companies to identify and analyse material ESG aspects. This includes both risks that may impact companies’ business operations, and hence their returns and risk profile, and the adverse impact companies may have on people and the environment.
We aim to perform a holistic assessment of how different dimensions of ESG. How we address sustainability risks, and to what extent, is adapted to each asset class and the investment model selected, as our ability to assess, manage and limit companies’ impact may differ.
Our assessment of sustainability risks is also influenced by how well companies manage their risks. As part of our management of sustainability risks and as a responsible investor, this may involve selling assets when improvements fail to occur, or when we identify risks that we do not believe we can manage well.
Companies with particularly high sustainability risk
When investing in companies with particularly high sustainability risks, we follow specific guidelines to help us manage these risks. This includes companies in certain industries or companies that have a history of poor management of sustainability issues.
We ensure that risks are taken into consideration in the investment decision, and that we either:
- Conclude that the risk is acceptable
- Conclude that the company is improving and that we can support the positive development through active stewardship
- Choose to invest our funds in other assets if risks cannot be managed well
Managing sustainability risks in this way allows us to ensure that our portfolio both protects pension capital and contributes to a sustainable society.
Risks and opportunities in the world around us
Global trends and systemic issues in the world around us – climate change, biodiversity loss, digitalisation and polarisation, for example – amplify existing risks and give rise to new sustainability-related risks and opportunities for society in general, and for our holdings and portfolio as well.
That is why it is important for us to continuously assess how the world around us is developing and how this may affect our investments and our ability to generate returns over time. It is also important to ensure that the companies in which we invest work to identify and manage risks and capitalise on opportunities of strategic importance to their business model.
