Swedish equity funds can do more to help with the climate transition

News, Staff memo Swedish equity funds that have joined a climate initiative have on average reduced the carbon dioxide emissions in their portfolios more actively than those that have not joined an initiative. However, there is little evidence that funds that have joined an initiative have significantly reduced their exposures to the most polluting companies. This is according to a new staff memo by Cristina Cella, advisor at the Riksbank.

In “Fifty shades of green: The colour of Swedish equity funds" Cristina Cella investigates the carbon footprint and trading activity of Swedish equity funds during the period 2019-2021. Cella focuses in particular on funds belonging to investment management companies that have joined the Net Zero Asset Managers Initiative. She compares their characteristics and investment portfolios with funds whose managers have not subscribed to any climate change initiative.

Funds that have joined the climate initiative have reduced their carbon dioxide emissions, but are still exposed to some of the most polluting companies in their portfolios. This also applies to companies belonging to very high-emitting industries.

There are two main possible explanations for this:

  • The funds are keeping the most polluting shares in their portfolios because they consider the firms issuing them to be working sufficiently on their green transitions.
  • The funds are not greening their portfolios quickly and effectively enough.

Cella notes that the latter explanation is much more troublesome, both for the climate transition and for the financial system. However, it is difficult to assess which explanation is most relevant, as this requires more structured, transparent and verifiable information that would allow better monitoring.

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Updated 03/10/2022