Interview with Magnus Billing, Chief Executive Officer, Alecta Pensionsförsäkring

Climate Action caught up with Magnus Billing, Chief Executive Officer, Alecta Pensionsförsäkring, on scaling up low carbon investment and his participation in the first Sustainable Investment Forum Europe.

1. Can you introduce Alecta and how its core investment strategies include climate issues?

Alecta was founded in 1917, as the result of the cooperation between the labour markets’ various parties. Today, Alecta manages occupational pensions on behalf of 2.3 million individuals and 34 000 corporate customers. When insuring millions of individuals and managing assets worth EUR 85 billion it is quite clear that the financial risks taken by pensions funds must generate the highest possible returns without ever jeopardizing commitments to the beneficiaries. And our assignment requires by nature a long-term perspective. 

Alecta has chosen an investment model that is quite unique for a pension fund of our size, in the sense that it is based on active management of an equity portfolio of about 100 holdings and a corporate bond portfolio with equally few issuers. This, as opposed to traditional negative screening, means that we have actively identified and know every company we invest in.

We have actively chosen to be less exposed to carbon intensive companies, for instance our portfolio does not include oil companies, and during the last few years we have significantly reduced the carbon footprint of our portfolio - mainly through divestment, but partly because of ambitious climate work by our portfolio companies. We are signatories to the Montreal Pledge and measure and disclose our carbon footprint, and when benchmarking with our peers we see that our strategy has had significant effect. This said, we believe that the carbon footprint does not give the complete picture. Pension funds and other long term investors are necessary for investments in large scale transition towards a climate resilient economy, which may negatively impact the carbon footprint in the short term.

2. Alecta wants to develop the financial market to become more sustainable, what do you see as your key strategies to achieve this?

It is obvious that there is a need for financing to ensure a transition to a more sustainable development, to meet both environmental and social needs as laid out in the Agenda 2030. At the same time, we experience a shortage of large-scale investment opportunities for mainstream investors like us. We have seen a few good examples, such as the French green sovereign bond and alike. So, I have been advocating for such opportunities, constructive use of guarantees and other de-risking measures to enable allocation to assets that actually contribute to sustainable development. I believe that the market is innovative enough to find such solutions, but there is a need for clarity on policy both on national and international level to create incentives for the market and to attract capital to long-term and potentially less liquid investments. These ideas are subject to many of our conversations with policy makers, our industry and other stakeholders.

Being extremely cost-efficient, we believe in standardization and harmonization of measurements and data. Therefore, we collaborate and support various initiatives that contribute to that development. For instance, comparable data and performance indicators for companies to report on Agenda 2030, as in the initiative from Global Compact and GRI. And of course, as we speak, the ongoing work of the High-Level Expert Group on Sustainable Finance to provide recommendations to the EU commission, where I myself participate as one of the experts.

And, to be humble, as much as we can ask the market to come up with increased supply of large scale sustainable investment opportunities or create standardised data measurements, we do need to recognise that there is an opportunity to learn. In fact, in the HLEG report it is stated that pension fund assets should be less prone to short-term financial risks, but they are potentially more exposed to substantial long-term risks related to the real economy and the environment. It is also stated that the interplay between governance and sustainability is key to ensuring that those who lead institutions become fluent in sustainability risks and opportunities. For instance, the recommendations of the Taskforce on Climate-related Financial Disclosure, highlights a need to develop and understand new scenario models.

3. You were recently named by the WWF as one of the 29 European asset owners who are well aligned with the 2C target, what do you see as some of the greatest barriers or challenges to achieving this goal from an investment perspective?

Our active investment model, with a very selective portfolio, offers favourable conditions to align with overall sustainable development ambitions to a certain degree. However, we must remember that it is not only about mitigating our current carbon exposure, but enabling investments in the opportunity side, including transforming the industrial sectors and transition to a low-carbon society. Policy direction, lack of risk-adjusted investments of scale and reliable data and calculation methods are some of the main challenges we face today. 

4. You will be speaking at the first Sustainable Investment Forum Europe, what do you think can be achieved in terms of outcomes of the Forum?

Well, inspiration – and determination! I experience that there is a true momentum for Europe to show leadership for sustainable development, and that the financial community is seriously committed to be part of this. I think it is of critical importance that any chance to convene in a forum like this also leads to action, either through joint initiatives or insights that we can bring home to our respective organisations and act on!

Join Magnus Billing at the Sustainable Investment Forum Europe on 13 March 2018, register here.