Swedish equity funds far from Paris Agreement target

The Central Bank of Sweden, Riksbank, has published a staff memo entitled Taking their temperature: Swedish mutual funds and the Paris Agreement. The memo contains an analysis of 122 Swedish mutual funds‘ exposure to transition risk based on an assessment of their proprietary portfolio data and on forward-looking data provided by Carbon4Finance Carbon Impact Analytics (CIA) Platform. Additionally, the analysis looks at how the exposures to transition risks have changed over time between 2019 and 2022. To top it off, the author has also calculated the temperate increase that each portfolio would be aligned with by the end of the century based on the above noted forward-looking data. In this context, the author reminds that the Paris agreement aims to limit average global warming to well below 2 degrees Celsius in the long term compared to pre-industrial levels, thus the alignment of investment funds should fall – in the long-term – below this level.
The key findings of the analysis are briefly noted below; for detailed, more comprehensive information, please consult the enclosed document:
– The 122 Swedish mutual funds‘ are far from reaching the long-term goals of the Paris agreement. In fact, the data suggests that they are „aligned with a temperature increase of 2.77°C“, on average.
– Only five of the 122 funds would reach the 2°C mark.
– The exposure to transition risk is thus very high.
– There’s no evidence that funds that have joined the Net Zero Asset Managers Initiative or the United Nations inititiative Principles for Responsible Investment are doing better than those that haven’t.
– Similarly, funds with a Low Carbon Designation (LCD) from Morningstar aren’t performing better than the average.
– Smaller funds are typically less aligned with the long-term goal of the Paris agreement, meaning their alignments are above the average calculated for the sample.
– Index funds, on the either hand, tend to be aligned with a temperature increase that’s below the 2.77°C average, although there are large variances in the sample.