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Climate. |
The ATP Group. |
Part of ATP’s responsibility |
2. |
Climate. |
ATP’s work with climate change. |
The interplay of climate change and investments is complex and may impact ATP’s return in various ways. Climate change offers new investment opportunities, but many also lead to new types of risk. That is why ATP is considering climate in our investment decisions. |
Climate change is one of the greatest challenges we face today and will have a massive impact on our society and therefore also ATP’s investments in the future. We therefore want to support the transition to a green economy in Denmark and globally by being an active investor and providing capital for green projects. |
Climate change has a strong impact on ATP’s investments, since it has the potential to affect the long-term risk-adjusted return both positively and negatively. It is impossible to predict. |
ATP applies a number of processes to ensure that climate concerns are meaningfully integrated in the investment processes. As a new initiative, we focus on mapping our exposure to extraction of fossil fuels across asset classes throughout our portfolio. Based on this mapping, we have chosen not to invest in credit and ... |
We have integrated climate in the global equity portfolio where equity is selected based on quantitative models so. |
In 2019, we focused on the carbon intensity of the extraction activities of oil companies. Based on Stanford researcher Masnadi’s estimates as to the carbon intensity of oil production in each of the world’s oil-producing countries and data regarding the geographical distribution of the oil companies’ production, we ha... |
Based on this analysis, we have divested four companies from ATP’s investment universe since their carbon intensity was significantly higher than the average. We have also engaged how climate change will affect the investment portfolio, and we therefore want to consider climate broadly in our work across our portfolio. |
ATP supports the recommendations from the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) and uses them as an overall framework for verifying, challenging and developing our approach to and understanding of climate risks. |
that our equity selection also considers climate risks. This helps strengthen the resilience against climate risks in the equity portfolio. |
During the past years, ATP has amassed a portfolio of green bonds worth almost DKK 20 billion. This is an area where we want to help develop the market for green bonds by engaging in a dialogue with the issuers of green bonds and demanding that they are transparent and report. |
in a dialogue with seven companies that we found were not sufficiently transparent when it came to relevant CO2 emission figures. Three of the companies did not respond to our inquiries and have therefore also been excluded from our investment universe. In 2020, we will continue the dialogue with a number of oil compan... |
ATP is part of the Climate Action 100+ investor initiative, which on several occasions in 2019 managed to push the world’s biggest CO2 emitters in a greener direction. |
Basis. |
Processes. |
Activities |
3. |
Climate. |
ATP’s ESG principles and climate in investments. |
ESG as an investment belief #1. |
Strong tailored processes #2. |
Development of ATP’s ESG competencies #3. |
Preference for capital stewardship #4. |
Climate change can affect ATP’s investments in various ways depending on the specific asset class and investment. Efficient integration is conditional on the climate work being adapted to the individual investment process. For some of ATP’s investments, a quantitative approach that focuses on data is the most expedient... |
Climate change affects the value of many assets in ATP’s portfolio. That is why we use our capital stewardship across the portfolio from our investments in listed equity, in our investments in infrastructure and real estate and as an active voice in developing the market for green bonds. We have a preference for capita... |
ATP believes that climate change has a material impact on the risk-adjusted return on our investments. Climate change engenders new investment opportunities, but also leads to a number of investment risks – both transition risks and physical risks – that can have a negative impact on ATP’s investments. That is why we a... |
The interplay of climate change and investments is complex and multifaceted. Investors are faced with a host of methods that can be used to calculate climate footprint, climate risks, etc. Actual integration of climate change in ATP’s investments demands a persistent focus on developing our own knowledge and understand... |
4. |
Climate. |
ATP works with green transition throughout our portfolio. |
Climate change is one of the greatest challenges we face today and increasingly affects our society and therefore also ATP’s investments. We therefore want to support the transition to a green economy in Denmark and globally by being an active investor and providing capital for green projects. |
Climate change has a strong impact on our investments and the potential to affect the long-term risk-adjusted return both positively and negatively. |
ATP supports the recommendations from the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) and uses them as an overall framework for verifying, challenging and developing our approach to and understanding of climate risks. |
We work with the recommendations on two fronts. Firstly, we work with the TCFD, including the supplementary guideline for asset owners to better understand ATP’s own climate-related financial risks. That is why we also want to be transparent in terms of how ATP includes climate in our investment decisions. |
Secondly, as a responsible investor, ATP also encourages companies that ATP invests in to work with the TCFD recommendations and climate-related financial reporting. This applies to both listed and unlisted companies. |
ATP’s work is based on a holistic approach to how climate change and the fight to bring them under control affect both the Danish society and the rest of the world. Integration of climate change in investment analyses and investment decisions is not confined to selected asset classes or investments. |
Basis in particular sectors in society. On the contrary, ATP’s position is that climate change can directly or indirectly affect all of ATP’s investments. |
According to the United Nations Climate Panel, climate change will cause changed weather patterns and more extreme climate events such as flooding and drought. This might impact some of our activities. It is, for instance, relevant to consider potential physical risks such as flooding and storms when ATP invests in maj... |
Climate change and the uncertainty about future legislation and technology create new conditions for how companies act. As an investor, ATP is broadly exposed to such transition risks since they can both have a wide impact, such as prices on CO2, and affect individual sectors in the form of new technologies, changed co... |
The green transition gives ATP a range of new investment opportunities. This might be investments in new technologies, which will play a key role in the green transition. Accordingly, ATP expects to increase our green energy investments significantly in the coming years. |
A key element of the green transition involves reducing the global reliance on fossil fuels. At the same time, we focus our capital stewardship towards: z reducing demand for fossil fuels by generally encouraging companies to reduce their reliance on fossil fuels in their production and z encouraging the providers of f... |
However, ATP is also aware that some companies’ existing business models can become so challenged by the green transition that they might end up as stranded assets. |
With ATP’s role in Danish society, we also want to support Denmark’s high level of ambition in the climate area and thus contribute to Denmark, and the world in general, reaching the goals of the Paris Agreement. |
5. |
Climate. |
Basis. |
WHAT ARE CLIMATE RISKS? |
Climate risks can be divided into two overall categories – transition risks and physical risks. |
Transition risks are risks that originate from the transition to a green economy. This might be political initiatives that negatively impact existing business models or new technology that outcompetes existing technology. It is therefore indirect risks that arise due to political, economic and technological adjustments... |
Physical risks are risks that arise as a consequence of climate change. This might be risks of flooding of buildings, changes in crop yield, drought, forest fires, etc. that directly or indirectly impact a company financially. |
INVESTORS AND THE PARIS AGREEMENT. |
The Paris Agreement is an agreement made between countries – not investors. Under the Paris Agreement, the countries commit to keeping anthropogenic temperature increases below 2 degrees Celsius, preferably 1.5 degrees Celsius. The method for achieving this is that the countries meet every five years and present their ... |
There is no authoritative way of determining whether investors ‘comply with’ the Paris Agreement – one reason being that it would require distributing the remaining ‘carbon budget’ to the world’s investors, which is not possible. ATP is instead working to support the Paris Agreement through stewardship and our investme... |
Four focus areas with related recommendations. |
The Task Force on Climate-related Financial Disclosure has been established by a string of international experts with specialist knowledge about climate and financial reporting. The expert group was established at the request of Financial Stability Board, a body under the G20 holding special responsibility for ensuring... |
Governance Describe the board’s and management’s role in the work on climate-related risks. |
Strategy Describe the current and potential impacts of climate-related risks and opportunities on the company’s business model. |
Risk Management Describe how the company identifies, assesses and manages climate-related risks. |
Metrics & Targets Describes the targets and metrics the company applies to assess and manage climate-related risks. |
6. |
Climate. |
ATP considers climate change when selecting equities. |
Processes. |
We expect that, over time, climate change will have an impact on ATP’s risk-adjusted return. We therefore want to consider climate across our asset classes, but in a way that takes the specific investment processes into account. |
ATP’s global equity portfolio is invested according to a quantitative factor selection strategy. This means that ATP selects equities from a universe of several thousands of companies based on tried and tested, factor-based market data analyses. Examples of tried and tested quantitative factors are momentum and low ris... |
In 2017, ATP launched a project to investigate the possibilities of integrating ESG data in the quantitative factor selection strategy. ESG data are non-financial data for environment, social matters and company management. |
In the financial sector, it is well known that ESG data offer some challenges. These challenges include data quality and the fact that the individual data provider applies its own understanding of ESG, meaning that assessments of a company’s ESG practice may vary across providers. |
Our ESG team and investment team cooperated to assess various data points with a view to finding data points with a sufficiently long history to be relevant from ATP’s perspective. Ultimately, ATP found a data point from data provider MSCI which links a company’s exposure to CO2 emissions with the company’s willingness... |
There were a number of reasons for ATP choosing this exact data point. Firstly, ATP has previously used the data point as a vantage point for a thematic involvement with companies that scored low on the MSCI data point. In connection with the dialogue with the companies, ATP found that MSCI’s assessment of the companie... |
ELECTRICITY PRODUCERS MUST PREPARE FOR A GREEN FUTURE. |
When investing in new electricity producers, ATP will enter into a dialogue with the company about strategies and plans for green transition. Electricity producers that base more than half their electricity production on coal will be divested if they do not have any plans for or wants to engage in an dialogue about tra... |
In the long run, companies with a strong management focus on climate will generate a better return to the shareholders. |
Not all ESG data can be used for investment purposes, but we believe that by making an effort and relating to these facts, additional value can be created for our investments,” Christian Kjær, Head of Liquid Markets |
7. |
Climate. |
Processes. |
Low risk. |
Momentum. |
Value. |
Climate. |
ATP INCLUDES FOUR FACTORS IN OUR GLOBAL LIQUID EQUITY INVESTMENT STRATEGY. |
On average, equities with few price fluctuations have a high, low-risk return. |
Equities that within a short period of time have generated a good return will also have an averagely good short-term return going forward. |
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