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Climate 2020. |
Part of ATP’s Responsibility. |
The ATP Group |
2 3. |
Climate Climate. |
ATP’s work with climate issues. |
Climate change offers new investment opportunities, but may also lead to new types of risk. Therefore, we include climate considerations in our investment decisions and influence portfolio companies to pursue a green direction. |
Foundation. |
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. 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 climate change has the potential to affect the long-term risk-adjusted return both positively and negatively. It is impossible to predict how climate change will affect the investment portfolio, and we therefore want to consider climate broadly in our work ... |
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. In 2021, ATP will work in a targeted manner to integrate cl... |
Processes. |
In 2020, we continued our work with mapping carbon-related investments. We have repeated last year’s mapping of investments in fossil fuel extraction companies, whose weighting in the portfolio has been decreased by 22 per cent last year based on market value, and in the equities portfolio investments in fossil fuels h... |
In addition, we have also mapped investments in industries that emit a lot of CO2 via their production and burning of fossil fuels. This particularly applies to cement, steel and petrochemical companies. For cement, the conclusion has been that ATP’s investments are so small that there is no investment-related risk for... |
In the global equity portfolio, the selection of shares is based on a quantitative models. we have integrated climate data into these models, so that our selection process also takes into account the companies’ plans for a green transition. |
During the past years, ATP has amassed a portfolio of green bonds worth almost DKK 30 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 that they are transparent and report. |
Activities. |
In 2020, we have created a new rating for oil companies to ensure that ATP does not invest in oil companies whose production processes are the least climate friendly. Even though ATP at present only has limited exposure to oil and gas companies, the rating helps to ensure that the ones we do invest in are not the ones ... |
Each year we calculate our liquid investments’ carbon footprint based on TCFD’s recommendations. However, ATP believes that there are a number of challenges associated with using CO2 as a management tool in an investment portfolio. |
For the first time this year, ATP has begun collecting data on our illiquid investments and therefore we are now able to give an insight into the carbon footprint of parts of our illiquid investments. For example, our data shows that the majority of the illiquid portfolio’s carbon footprint comes from a single company,... |
#1 ESG is an Investment Belief #2 We believe in effective ESG integra- tion via customised processes #3 Actual integration requires internal. |
ESG competences #4 We believe in capital stewardship – within limits. |
In 2020, ATP has: • invested DKK 29 billion in green bonds • declined to invest in construction of new coal power plants by utility companies • excluded 25 oil and gas companies due to ATP’s new oil rating system • published the carbon footprint of the illiquid portfolio for the first time • mapped investments in fossi... |
4 5. |
Climate Climate. |
Foundation. |
A green transition across the portfolio. |
Climate change is one of the greatest challenges we face today and it 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. |
2020 has been a year where the COVID-19 pandemic has dominated the headlines, but climate change has not stopped due to the coronavirus. Even though there has been a reduction of CO2 emissions due to people working from home and disrupted travel patterns, the world is still facing a monumental challenge when it comes t... |
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. |
Due to 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. |
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. The integration of climate change in investment analyses and investment decisions is not confined to selected asset classes or investments in particular se... |
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 a new framework for how companies act. As an investor, we are 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 c... |
The green transition also provides us with 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 wants and expects to increase our energy investments significantly in the coming years. |
ATP is also working on mapping our investments in sectors that high a high climate impact in order to identify the risks across our portfolio. It is also our intention to investigate how we can include climate risks in our risk analysis work. |
In the coming year, ATP expects that the EU’s work with sustainable financing will impact how the financial markets work with climate and other sustainability issues in a major way, and therefore we will be monitoring the developments on this area in 2021 closely. |
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. |
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 makes new demands on business models or new technology that outcompetes existing technology. It is therefore indirect risks that arise due to political, economic and technological adjustments to cl... |
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... |
6 7. |
Climate Climate. |
Foundation. |
ATP’s work with the Task Force on Climate Related Disclosures (TCFD) |
ATP was the first Danish investor to support the TCFD and we have used their recommendations in our work ever since. There are two aspects to ATP’s work with the TCFD. Firstly, we work with the TCFD’s recommendations for investors, meaning we examine our own role in the context of climate change. Secondly, as an invest... |
Management Strategy Risk management Metrics and targets. |
The TCFD’s recommendations. |
Publish information on how the management works with climate-related risks and opportunities. |
Publish information on the actual and potential impact of climate-related risks and opportunities on the company’s operations, strategy and financial management if the impact is significant. |
Publish information on how the organisation identifies, measures and manages climate-related risks. |
Publish information on the metrics and targets that are used to assess and manage climate-related risks and opportunities if this is information is relevant. |
ATP. |
ATP’s Supervisory Board has the overall responsibility for ATP’s investment strategy, and this includes the ESG strategy. Each year, the Supervisory Board approves both the investment strategy and the ESG strategy and this is followed up on every six months. |
ATP’s Supervisory Board also receives annual reports on ESG themes, including a climate report. |
On a day-to-day basis, it is ATP’s Committee for Responsibility that oversees the work of integrating climate considerations into our investment and risk processes. The individual teams are also responsible for involving climate considerations in the relevant areas, for example, stewardship, due diligence, etc. |
ATP takes into account climate issues in our investment decisions across all asset classes as a natural part of both our due diligence work and our ongoing management work. |
We consider ESG as an investment belief, and therefore climate issues are also an important input when it comes to creating the best possible risk-adjusted returns. |
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. |
ATP has been working on integrating climate issues in recent years where we, among other things, have worked with scenario analyses and risk-based changes to the investment universe. |
In 2021, we will be looking into how climate risks can be used directly in our risk processes. |
In the past couple of years we have also used mapping to identify our investments in sector with a heavy climate footprint. We have used this to initiate stewardship initiatives and to make portfolio-related decisions such as, for example, deciding to no longer invest in the extraction of fossil fuels via external illi... |
Since the TCFD was published, ATP has also made public the carbon footprint figures for our equity and bond portfolios. This is despite the fact that we do not believe that carbon footprints are a comprehensive metric on a portfolio level. |
We are also working on mapping the carbon-related risks in our investment portfolio across asset classes in order to learn more about our exposure to climate risks. In 2019, we mapped our investments in fossil fuels and in 2020 we mapped our investments in petrochemical, steel and cement companies. |
In 2020 ATP also launched an ESG questionnaire that, among other things, is intended to ensure that we have better CO2 data from our illiquid investments. |
Finally, we are also working on reducing the climate impact of our own operations, which are mainly related to running offices. |
Companies. |
We expect that the boards of directors and management teams of companies work seriously with the integration of climate considerations for their business, ensure transparency on climate impacts (TCFD reporting) and set targets for the climate area. |
Likewise, we also expect that the management teams of companies are keeping up to date on climate developments on an ongoing basis, including future regulation. |
We expect that companies continually take into account climate change issues, including how climate change can impact their companies’ business models, for example, via new opportunities and risks. |
A company should also be transparent in its communications on how it impacts the climate and how the company is working on reducing this impact. |
Climate is a complex topic, and therefore we prefer that companies recognise this complexity in their communications. |
ATP expects that companies include climate risks in their general risk management processes and that they have specific plans for the challenges that apply to their industry and locations. |
This is particularly important for companies whose business activities are heavily impacted by climate change in the form of physical or transition risks. |
ATP expects that companies have a basic knowledge about their own climate impacts in the form of data from Scope 1 & 2 emissions. |
We also expect that companies specify ambitious and meaningful targets for the reduction of their emissions in both the short and long run. |
We expect that companies have an overview of their scope 3 emissions and are working on reducing them. |
Finally, we also expect that companies take into account the future regulation from the EU, particularly the green taxonomy. |
8 9. |
Climate Climate. |
Processes. |
Mapping uncovers climate risks and focuses stewardship activities. |
The Financial Stability Board, which helped start the work that led 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.’ |
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