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Equities that are sold cheap (equities with a high risk premium) generate averagely good returns. |
Companies in CO2 emission-intensive industries where management focuses on reducing CO2 emissions will outcompete competitors in the long run. + |
Exposure score Management score Emission score. |
CALCULATION OF EMISSION SCORE. |
Management’s effort to reduce exposure through extensive CO2-reducing policies and implementation. This involves, for instance, reduction targets for CO2 emissions, energy efficiency improvements and installation of CO2-cleaning technologies. Another option involves switching completely or partially to cleaner energy s... |
• Companies that operate in areas with strict CO2 regulations or intensification of CO2 regulations. |
• Companies whose primary operations are CO2-intensive based on CO2 per sale, as estimated based on an economic input-output model. |
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Furthermore, the data point has a sufficiently long time history to facilitate financial analyses of the data point. ATP’s financial tests have shown that inclusion of climate risks in exposed sectors does not increase the return on ATP’s portfolio but results in neutral performance compared to earlier. The consequence... |
ATP replaced a number of companies in its portfolio that failed to adequately address their climate risks. ATP therefore expects that the integration of climate data over time will help limit ATP’s future exposure to climate risks in the global listed equity portfolio. |
ATP has chosen a data point that assesses how a company’s management relates to the risks and opportunities offered by climate change relative to how exposed the company is to CO2 in its business. |
8. |
Climate. |
Mapping of investments in fossil fuel extraction. |
In 2019, ATP focused on stating investments in extraction of fossil fuels in our portfolio across asset classes. The mapping is part of our efforts to comply with the TCFD recommendations, which we have been working with since 2017. |
In our experience, the general public has a special interest in our investments in fossil fuels extractions. With the mapping, we want to be as open as possible about our investments and our work to integrate climate change in our investments. We also want to be open about the choices we make on behalf of our members. |
In the reports of recent years, we have dealt with the TCFD’s various carbon footprint metrics in detail. As accounted for in this report, we assess that statement of carbon footprints is useful from a company perspective, but for several reasons not meaningful as a management tool for a sophisticated and diversified i... |
In 2019, we therefore tried to find other avenues to applying the ideas behind the TCFD as a management tool for our overall portfolio management. |
The Financial Stability Board, which helped start the work that lead to the TCFD, did so because they believed that it would engender a better understanding of ‘the concentration of carbon-related assets in the financial system and the financial sector’s exposure to climate-related risks.’ |
Based on this notion, we undertook an overall mapping of ATP’s investments in carbon-related assets across ATP’s portfolio in 2019. This mapping provides an overview of ATP’s investments in coal winning as well as in oil and gas extraction. |
In our statement, we have not distinguished between oil and gas extraction, since most companies extract both oil and gas, and since gas is often extracted in connection with oil production. Moreover, when it comes to oil and gas, we have chosen to focus on the value chain from extraction to the end user – technically ... |
Processes. |
The statement has confirmed our previous understanding that ATP has not made any appreciable investments in companies engaged in coal winning. |
Through private equity funds, ATP owns shares worth DKK 36 million in three companies that win thermal coal, which can be substituted by other forms of energy, and metallurgical coal, which is used for e.g. steel production where no other forms of energy are available. The commitments to the private equity funds were g... |
In stating our investments in the oil and gas sector, we have learnt that, for listed companies in particular, excellent data are available that allow a relatively detailed statement of the investments, while for unlisted companies, it is harder to state precisely how a company’s activities are distributed on the value... |
Based on the mapping, we have decided to no longer invest in the extraction of fossil fuels in illiquid funds where ATP does not make the investment decisions, since we do not want to be bound for long periods of time to assets that might end up as stranded assets. Investments in private equity funds and credit funds h... |
INVESTMENT THROUGH EXTERNAL FUNDS During the past years, ATP has given its commitment to a number of private equity and credit funds that invest in and lend to companies on behalf of ATP. Generally, ATP cannot divest companies in these portfolios once they have been acquired by the manager. However, as a consequence of... |
9. |
Climate. |
Processes. |
OVERVIEW OF ATP’S INVESTMENTS IN EXTRACTION OF FOSSIL FUELS. |
Private equity funds and credit funds: Covers investments in funds that, based on a pre-agreed framework, invests in or lends money to a number of funds. ATP cannot select the investments itself once the agreement has been concluded. In future, ATP has therefore chosen to require that new funds should not include compa... |
Infrastructure: This category covers ATP’s own direct investments in infrastructure and funds that invest in infrastructure projects and companies. The four companies in the table are all companies that operate with pipelines and other midstream infrastructure. |
Listed equities: The companies in the table cover a range of companies with different exposure to oil and gas. Three of the companies (Total, Eni and OMV) account for the majority of the oil and gas production in ATP’s portfolio. |
Corporate bonds: ATP has an externally managed portfolio of corporate bonds that invests in high-yield bonds. ATP engages in an ongoing dialogue with the external manager on the investments in fossil fuels. |
*Stated as at 1 November 2019. |
Market value Olie & Gas Coal. |
DKKm #Companies DKKm #Companies DKKm. |
Private Equity & Credit Funds 63,589 116 2,998 3 36. |
Infrastructure 44,784 4 1,368 0 0. |
Equities 73,135 17 850 0 0. |
Corporate bonds 4,004 52 332 0 0. |
We have decided that, in future, we will require that new investments in illiquid funds should not invest in extraction of fossil fuels |
10. |
Climate. |
As one of Europe’s biggest bond owners, we want to support the development of the market for green bonds. |
We therefore increased our investments in green bonds in 2019, bringing ATP’s total value of green bonds to almost DKK 20 billion. Green bonds are characterised by the issuer of the bond using the loan to finance climate-friendly investments. A climate-friendly investment might be an investment in e.g. increased energy... |
ATP’s green bonds must fulfil our investment requirements as well as our ESG requirements. ATP invests in green bonds with a credit quality corresponding to the bonds that ATP is already investing in. This means that it must be government bonds or bonds with similar credit characteristics. We do so since the green bond... |
Besides high credit quality, we require, as a minimum, that the issuers meet the Green Bond Principles and ATP’s ESG principles – in practice, we have developed our own standard that is stricter than the Green Bond Principles. |
At the same time, ATP has chosen an approach to green bonds where we engage in a dialogue with the issuers on increasing the transparency so that investors and other stakeholders get insight into exactly which projects the bonds help finance. More specifically, we want to strengthen the quality and the volume of data f... |
In our dialogue with the issuers, we focus on what in financial terms is called ‘use of proceeds’. This concept covers how the proceeds from the individual bond issue are used. During the year, we have held many meetings with the issuers to understand how they report and the level of transparency in their reporting. Ba... |
Requirement for transparency and reporting in green bonds. |
ATP constantly follows the development in the market for green bonds, including in particular the EU’s work on sustainable financing and an EU standard for green bonds. In 2020, we will try to develop a metrics that is able to benchmark the green bonds of national states. |
In 2019, the World Bank issued its first green bond denominated in Danish kroner, of which ATP was one of the buyers. The World Bank’s green bond helps lift the financing of projects among the bank’s 189 member countries. |
Processes. |
ATP wants to push the development of the market for green bonds. We therefore engage in a dialogue with the issuers of the bonds to ensure transparency about the projects that ATP’s green bonds help finance.” Lars Dreier, Senior Portfolio Manager |
11. |
Climate. |
Processes. |
WHAT IS A GREEN BOND? |
A green bond is a loan where the money is targeted at green projects and where the recipient is required to report on the projects. ATP has five requirements for issuers of green bonds. |
1. Use of proceeds We demand to get a statement of which projects we finance through our green bonds. Here we focus on refinancing of projects as well as mapping of strategy and requirements for financing of projects from the bond issuer. |
2. Process for project evaluation and selection We want to know the processes and criteria on which the projects are assessed. |
3. Financial management We demand to get information about where capital from our green bonds are allocated to before they reach the green projects. At the same time, ATP wants to be able to trace the specific projects we help finance. |
4. Reporting Reporting about the projects our green bonds help finance must be solid. |
5. External validation The issuer of the green bond must obtain an external assessment of whether the projects comply with the Green Bond Principles. |
THE DEVELOPMENT IN ATP’S GREEN BONDS AS AT 31 DECEMBER. |
ATP expects to increase its holding of green bonds in 2020. |
0 5 |
10 15 20 25 06-10-2017 06-12-2017 06-02-2018 06-04-2018 06-06-2018 06-08-2018 06-10-2018 06-12-2018 06-02-2019 06-04-2019 06-06-2019 06-08-2019 06-10-2019 06-12-2019. |
Mia. kr. |
12. |
Climate. |
The world is facing a transition to a green economy, which means that the world’s energy system must be transformed from being based on fossil fuels to being based on renewable energy. |
A number of scenarios from the United Nations Intergovernmental Panel on Climate Change – (IPCC) and the International Energy Agency (IEA) predict significant changes in the world’s energy supply if the world is to succeed in reaching the targets of the Paris Agreement on a temperature increase of less than 2 degrees C... |
The outcomes are many if investors apply both the IPCC’s and the IEA’s scenarios for how the world’s oil consumption over the next 20-30 years might develop within the framework of the Paris Agreement. |
Spotlight on CO2 emissions from oil extraction. |
Activities. |
However, it is possible to deduce two things from the scenarios: Oil will still be used in year 2050, and oil consumption will probably be much lower than today. |
Oil consumption will drop over the next 20-30 years, but the world’s overall energy demand will not drop at the same pace. We therefore assess that it is important to focus on both demand and supply of oil. |
Companies across sectors whose businesses today rely on oil must be encouraged to find more sustainable alternatives and thus reduce their demand for oil. |
Companies whose business model now concentrates on the extraction of fossil fuels must be influenced to change. |
OIL CONSUMPTION IN IPCC AND WEO SCENARIOS. |
The chart illustrates the trend in oil consumption for the IPCC’s ‘migration pathway’ scenarios and for the World Energy Outlook’s (WEO) Stated Policy Scenario and Sustainable Development Scenario. |
The blue line shows the median of 90 IPCC scenarios, which are all 1.5-degree or 1.5-degree-consistent scenarios. The grey area shows the distribution of oil consumption in IPCC’s 1.5-degree scenarios – so there is a considerable outcome space for oil consumption in 2050 depending on how the world complies with the Par... |
WEO makes three scenarios in which this chart depicts two of the scenarios. Stated Policy Scenario (Blue) reflects the trend in oil consumption if all implemented and stated policies are implemented. This scenario is not a scenario under the Paris Agreement. |
WEO Sustainable Development Scenario (Green), which is based on the climate-related Sustainable Development Goals, shows the trend in the primary energy need from oil if the world keeps the temperature increase below 1.8 degrees Celsius at 66% probability.” According to the WEO, this scenario is compatible with the Par... |
EJ 0 |
50 100 150 200 250 300 350 400 2018 2050. |
Varians IPCC IPCC median. |
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