AP1 and Tobam partner to create fossil fuel-free funds

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On the 10/06/20 at 6:44PM

by

Tuba Raqshan

Swedish pension fund AP1 and Paris-based quantitative asset manager Tobam announced a new investment approach that would exclude fossil fuels in emerging market equities and international high yield bonds.
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In response to a request from its client AP1, Tobam announced that it would use its patented Maximum Diversification investment process to foster a 100% fossil fuel-free approach to these strategies runed for AP1, while building a portfolio with a well-diversified risk exposure.

This implies that companies actively involved in the production, sale or extraction of fossil fuels (including coal, coal-fired power generation, oil and gas) are excluded from the investment universes of these two strategies. 

Tatjana Puhan, Deputy Investment Director, Managing Director of Tobam, said that their research showed that the exclusion of assets involved in fossil fuel activities does not significantly affect their approach in terms of performance, volatility, drawdowns or diversification characteristics as measured by the Diversification Ratio. “Most interestingly, our research has shown that the portfolio's exposure to risk factors does not vary significantly. This is one of the key properties of our approach: its ability to remain equally exposed to all independent sources of risk available in the market,” explained Puhan.

According to Majdi Chammas and Tina Rönnholm from AP1's External Partnerships and Innovation Department, this initiative marks an important milestone for the industry. “Tobam's analysis demonstrates that ESG criteria can be addressed through a systematic approach across very different asset classes without sacrificing returns or the nature of an underlying investment philosophy,” they said, adding that this is in line with their commitment to supporting sustainable development and ensuring optimal investment returns.

AP1 decided in March to no longer invest in fossil fuels. In addition, the fund has also decided to develop measurable targets and a roadmap towards achieving a carbon neutral portfolio by 2050.