Swedish pension fund AP7 has partnered with Legal & General Investment Management (LGIM) to develop a climate change strategy that forms part of AP7’s transition portfolio.

The partnership is an active investment mandate that aims to drive ‘real-world change’ while unlocking long-term shareholder value by investing in, then engaging with, companies that are lagging behind on climate work.

This contrasts with approaches that invest in companies already aligned with being net zero by 2050.

Through active ownership management, AP7 and LGIM aim for the partnership to help these companies adjust in line with the Paris Agreement.

The partnership’s objective is to achieve a positive effect on companies’ climate transitions and positive value development.

AP7 and LGIM said the climate strategy will follow a data-driven, fundamental and engagement-led investment approach, leveraging insights from LGIM’s global investment research, tools and investment stewardship teams.

AP7’s transition portfolio is part of its plan to contribute to achieving global net-zero emissions by 2050: AP7’s Climate Action Plan.

The portfolio is based on the theory that investment is likely to be more beneficial in the climate transition for companies with high emissions that have a longer transition ahead than companies that are already best in class.

The ambition is to achieve real economic effects through globally reduced emissions.

Commenting on the announcement, AP7 CEO, Richard Gröttheim, said: “We had a very thorough process to find the right partner to team up with.

“Finding LGIM was a meeting of minds. We look forward to developing this innovative solution together in the coming years.”

LGIM head of climate solutions, Nick Stansbury, added: “Many ESG strategies in the marketplace own climate leaders via index products or screen out laggards.

“For this strategy however we are taking a very different approach: By leveraging LGIM’s leading stewardship expertise and engagement track record, combined with our proprietary LGIM Destination@Risk tool, which allows us to assess climate-related investment risks and potential opportunities, we believe we are well placed to deliver on our commitment to drive real world change and unlock returns for investors.”

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