At the height of the GFC, CalPERS was forced to sell assets it didn’t want to sell at the worst possible time. “What was actually liquid, was the high-quality stuff,” recalled Dan Bienvenue, deputy CIO at CalPERS who joined the fund back in 2004, speaking in a recent board meeting.

The Californian pension fund found itself overweight assets it no longer wanted to hold but finding a bidder was like staring into an abyss. In short, the GFC exposed a profound liquidity crisis, revealing that the giant fund had lost control of its own funding levels with a large securities lending book lent out for cash, liquidity spread throughout asset classes, and poor visibility on what capital calls lay around the corner.

Lessons learnt during those traumatic months rewrote CalPERS approach to liquidity, fed into the decision to add a 5 per cent strategic allocation to leverage and instilled a determination to be able to lean into opportunities in a down market.

Years in the making, these changes are now crystallised in the fund’s latest strategic asset allocation, in execution since July this year. “I can think of few things that are more important than we are prepared to be a buyer as opposed to having to be a seller when the market turns,” said board member Lisa Middleton.

Strategy in Action

Today, the $429 billion pension fund has dry powder on hand to invest, recently witnessed in an ability to buy into opportunities during the pandemic-induced sell off. Unfunded commitments sit ready in dry powder for partners. Dry powder also sits in separately managed accounts, at the ready to deploy alongside handpicked strategic partners in co-investment vehicles. Unlike in the past, all capital calls are in line with assumptions and models, and come at the right pace.

CalPERS sources of liquidity are deliberately diverse. Alongside dry powder stores or the ability to tap pension contributions as a source of liquidity, the fund can seize the opportunity to invest in distressed assets by selling equities, using that cash to purchase the asset while using an equity future to maintain the equity exposure. It amounts to liquidity on demand from the fund’s huge pool of liquid public market assets that are both saleable and desirable. A centralised approach also allows the fund to choose which funding sources best optimises the cost and composition for the portfolio at the time.

Today CalPERS has shrunk its securities lending book, and collateral calls are based on equity for equity the means collateral levels don’t change but move at the same pace as the market, Bienvenue said.

CalPERS regularly reports on its liquidity and leverage position – liquidity levels have been lower in recent months and could fall further on another leg down in markets. But a central pillar to the strategy and mark of its success lies in the fact the investment team doesn’t need to continually focus on liquidity because the pacing and framework is set in place. “We can focus on investment,” CalPERS’ investment director Michael Krimm, told the board.

Today, liquidity provisioning takes into account capital calls and margin for derivatives all with an eye on market movements and volatility based on internal forecasting models. Managing liquidity involves participation from across the fund, forecasting rebalancing needs, planning for capital calls and identifying market trends in a robust process.

The board heard how deep dive analysis over the years involved an exploration of the liquidity inherent in CalPERS assets, exploring the ease with which an asset can be traded and the income it generates. Findings revealed cash, government bonds and equities have the highest level of liquidity and are easily sold to meet funding needs. In contrast private equity and private debt have higher returns, but less opportunity to generate cash on demand.

Private markets

Alongside a new strategic allocation to leverage, CalPERS latest asset allocation promises a boosted allocation to private markets spanning private equity, real assets and private debt. November’s board meeting saw the investment team petition again for fresh tools and flexibility in managing the allocation – namely an increase to staff delegation limits.

“We need more tools and a refresh of policies put in place when the fund had a lower allocation to private assets,” urged CIO Nicole Musicco,  determined to build an agile investment philosophy that goes beyond simply setting a SAA and pressing the button. Set every four years using capital market assumptions stretching 20 years into the future, assumptions must also be reviewed along the way, working with partners and checking the governance, she said.

Although hard to accurately account the opportunity cost for not allocating more to private assets because of staff delegation limits (knowing CalPERS would be unlikely to invest, GPs don’t tend to come forward with opportunities) the investment team warned the cost had been high. For example, every $1 billion invested in co-investment earns around $335 million more over ten years than the same $1 billion invested in fund investments.

Higher delegation limits mean the team can accept the larger deal sizes needed to ramp up private equity exposure as CalPERS targest an annual commitment pacing of over $15 billion to achieve a target allocation of 13 per cent. The private equity team will have to look at as many as 50 deals per year to get close to annual coinvest commitment targets, making the ability to accept larger co-investment deals critical while reducing the monitoring burden of smaller deals.

As for private equity fund investment, CalPERS expects that 70 per cent of commitments will exceed the investment team’s current delegated authority limits. The team expects to commit to around 20 funds this year leading to over 70 core managers over time.

The team made 116 fund commitments in the last 5 years about half of which have exceeded the delegated authority. Two recent investments exceeded the CIOs authority and were scaled down. “It’s difficult to achieve scale with lower delegated authority limits and detracts from our ability to reach our SAA,” said Musicco.

It’s the same problem in infrastructure where investment needs to more than double in size over the next three years to meet SAA targets.  The team needs to commit $5 billion per year to infrastructure with an average commitment size of $1.25 billion per deal. The infrastructure team have made around 19 commitments in the last five years and 32 per cent were above the delegated authority and were approved by the CIO. Two deals exceeded the CIOs authority, and were scaled down to meet the CIO’s delegation limit.

Decision making culture

In the last investment committee meeting of 2022, Musicco explained that a crucial element to building CalPERS private market expertise includes revamping the Investment Underwriting Committee. The committee, one of three CIO-chaired committees and tasked with reviewing all private market allocations above a certain size, is now structured to draw on expertise from all corners of the investment team in a collaborative process.

“I chair it, but the real secret sauce is the asset class heads and other experts providing a diverse lens,” said Musicco. “You have better decisions when you have the right eyeballs round the table,” she said, concluding that a collaborative approach allows the team to  “learn a ton from each other.”

The German economy will feel the impact of the energy crisis more than other European countries, and energy dependent industries will increasingly explore moving production to the US and Canada where energy is cheaper, said Jeroen van der Veer, Chair, Phillips and former chief executive, Royal Dutch Shell speaking at FIS Maastricht.

van der Veer, who warned that stalemate between Russia and Ukraine means Europe’s energy crisis will endure for some time yet, said Germany’s particular crisis lies in previous Chancellor Merkel allowing the economy to develop a 40 per cent dependency on Russian gas. A trajectory mirrored to a lesser extent in countries including Italy, Belgium, and the Netherlands. Europe is now sourcing from Norway and Algeria, and extra LNG from the US. However, suppliers in the Middle East are unable to divert much production to Europe because they have long-term contracts with China and South Korea, he said.

High gas prices in Europe are linked to the unique characteristics of the industry, explained van der Veer. Oil is globally available, but gas is semi-regional evident in European gas prices trading much higher than in the US. It is possible to export LNG, but this is costly and requires infrastructure. “It is not a market with the same flexibility as oil,” he said.

Europe’s energy market is also distinct from the US and Asia, he continued. US energy demand is in synch with supply while Asia, a huge net importer, taps diverse supply from Australia, Indonesia and Russia, amongst others. “Asia has many alternatives if one source falls away,” said van der Veer. Europe is not only a significant importer of energy – the region has also carved ambitious net zero 2050 climate targets. “Europe is in a different situation to the rest of the world,” he said.

Refill storage

Come 2023, Europe’s key focus will be on refilling storage capacity, but this will be difficult without using Russian gas. “Europe has enough gas this winter, but next year could be more challenging,” he said.

Governments will face difficult decisions around slowing their economies, or switching to diesel or coal, he said. Strategies for Europe’s large energy users include raising prices while industries like fertilizer and steel are exploring mothballing European production and increasing production in other areas of the world. However, not all industries – for example cement producers – can do this.

Germany will struggle to drive economic growth in Europe. German companies pondering relocating production to countries like Canada and the US, risks the de-industrialisation of Europe and the loss of manufacturing jobs. This will accelerate Germany’s transition, but is challenging for social solidarity and job creation, things that have built German economic success.

But moving production may not pay off for Europe’s energy intensive industries, he warned. Building new plants involves huge investment, paid back over the long-term, but high energy prices might not last that long. “I think I would wait a bit,” he cautioned. And he argued that although moving heavy industrial production elsewhere will reduce Europe’s carbon footprint, CO2 is harmful to the planet wherever it is produced. “Short term, there are big problems for the chemical industry,” he surmised.

Nuclear

Europe’s ability to come out of the crisis depends on how quickly governments can create other forms of energy at scale of which nuclear is a key component. As Europe explores alternative energy sources key factors come into play. Renewables are capital intensive, and as such require incentives for companies. Nuclear requires building plants in a steep learning curve – and France’s experience shows it takes years to finally garner cheap electricity. He urged investors to explore opportunities in nuclear power, and said that Germany’s decision to close its nuclear power stations now looks naive.

Carbon capture and storage

One of the biggest challenges with carbon capture and storage is the energy intensity of the technology required to capture and pump carbon  into the ground. “It equates to running up a down escalator,” he said. He suggested countries build carbon capture and storage facilities close to industry away from populated areas. “I see it coming, but it will not make much of a dent in the problem,” he said.

van der Veer said transitioning to a green economy will be impossible without partnering with oil majors with the skills and expertise. “I don’t believe the energy transition will be done by a bunch of start-ups,” he said. It is only the oil majors who know how to develop offshore wind and nuclear power stations. He also urged delegates to never underestimate US companies, slow to transition. “They can accelerate too,” he said.

He counselled against shale gas (where much depends on the type of shale gas) as an alternative. “Without capturing the carbon, shale is not viable.” Moreover, new coal fired power stations take too long to build. “One day there will be peace and part of that peace will mean the west has to buy gas from Russia, although it will be nothing like the levels is was” he said.

The energy transition also requires industry working with governments and consumers. Putting all the pressure on companies to solve it, and punishing them, doesn’t work if consumers are still demanding fossil fuels. Moreover, the energy transition will take years to achieve.

He also counselled on the importance of the world working together. Europe’s transition won’t stop the climate crisis if the rest of the world doesn’t also transition. van der Veer concluded that the energy industry will become more capital intensive per unit of energy; it will attract huge amounts of capital but he said investors will only finance the transition if they can make a decent return.

As Border to Coast approaches its 5th birthday chief executive Rachel Elwell reflects on the achievement of building a sustainable organisation, what investment capabilities are still to develop and the priorities for the underlying partner funds.

When Border to Coast became an entity in July 2018 the initial five-year strategy was focused on building a sustainable corporate function and the capabilities for funds to pool assets. In that time it has gone from an organisation with zero to 130 employees and £47 billion of pooled assets.

“It was a complex project to deliver,” chief executive Rachel Elwell says. “It’s going pretty well. COVID slowed us down a little bit, so it will be a couple more years to get there.”

The fund is the result of 11 local government funds pooling their assets, and of the £60 billion in total funds between the underlying partners, about £47 billion has been pooled with Border to Coast responsible for £38.3 billion.

Already the pooling has resulted in net cost savings of £20 million, with a total savings target of £145 million over 10 years and £340 million over 15 years. But more than just cost saving it allows the underlying partner funds to access asset classes that would be difficult to invest in without pooling.

In the past year alone Border to Coast has launched a multi-asset credit fund, a listed alternatives fund, a £1.35 billion climate opportunities investment proposition within private markets and increased allocations to private markets to £10 billion with fee reductions of 24 per cent.

“The cost savings show one of the benefits of pooling,” Elwell says. “It is understandable at the beginning that people focus on that cost saving, that is important. But over time we need to move the conversation towards what value we are producing, which is generating returns and opportunities the partner funds didn’t have before. We need to really judge ourselves on whether we are adding value for money with the scale we have got and whether we are delivering well on what our partner funds set out to do.”

Private markets

Private markets are a good example of the value add of the pooled vehicles.

“We bought forward that build, recognising quickly that our partner funds were looking to get exposure there,” Elwell says. “One of the things we were keen to do is understand what our partner funds needed, rather than rush in and build something.  We spent a lot of time understanding the key features and needs, and really honed in on the important things from a risk, return, income and liquidity perspective. This will stand us in good stead in the future, we are in it for the long term.”

The offering is a combination of external managers and internal capabilities which were cultivated from the existing capabilities of three of the partner fund internal teams.

About a third of assets ae managed internally, a third externally and a third in a hybrid model for private markets where Border to Coast is selecting funds but acting as a fund of funds managers.

“We could bring in people with experience in deploying capital through funds and co-investments so we are not paying fees to fund of fund managers, we are the fund of funds. And we are deploying more scale so could get better fees.”

Other advantages include allowing some of the smaller partner funds to access private markets for the first time; and for all the partner funds it allows for new and tailored investment opportunities.

The newly launched Climate Opportunities Fund is an example of that. The fund will be invested over a three-year period across private equity, infrastructure and private credit focusing on clean energy, technology, transport, industry (such as low carbon cement and steel production), agriculture and carbon sequestration.

“Talking to partner funds they are really excited to deploy capital to help the transition and more actively contributing to that not just taking out carbon,” Elwell says.

While infrastructure investments were already targeting some of those areas, including a recent €100m commitment to the Clean Hydrogen Infra Fund, the Climate Opportunities Fund allows for smaller and different types of investments.

“It is hard to get into the smaller funds doing niche things, so we are exploring doing something aimed at different types of investments not just big wind farms, there is a massive interest in that.”

Roadmap to net zero 2050

The fund recently published its roadmap to net zero 2050 which includes clear interim plans. It targets a 53 per cent reduction in financed emissions across its portfolios by 2025 and a 66 per cent reduction by 2030, reaching net zero by 2050 at the latest.

Currently about 60 per cent of the assets are covered by the plan’s emission reduction targets and Elwell says a big focus is to try and figure out how to get the rest of the portfolio covered as well.

The focus will be working with industry to improve data quality and methodologies to enable the remaining 40 per cent – made up of private market and some fixed income assets – to be brought into scope over time.

“We want to be working with the industry on private markets and how to get a recognised standard. If we can get a standard then GPs can consistently provide the data that is needed. The industry needs to work together to get the information to understand the risks,” she says, pointing to the ESG data convergence initiative.

Of the total assets about £2.5 billion is in emerging markets, with about £1.5 billion of that in emerging market equities and a bit more in a multi-asset credit and private markets.

“One thing close to my heart is supporting the just transition in emerging markets,” Elwell says. “Knee-jerk reactions to divest from emerging markets doesn’t feel the right way to go. It can be harder to engage in and influence some of those markets but we really need to collectively think about how to do that as asset owners. For emerging markets where there is such a reliance on coal we need to understand the transition.”  Border to Coast is one of the founding members of the £400bn Emerging Markets Just Transition Investor Initiative.

The fund is also working on collective action and involved with Climate Action 100+ and the TPI transition initiative.t

“It’s really captured people’s imaginations internally and the purpose we have is very important, and means a lot for us,” Elwell says. “It motivates us all to try and do the right thing for the 1.1 million members we have.”

What next ?

The fund is also looking to invest in some green, social and sustainability bonds as well as develop a few more equities capabilities.

But the big area of focus over the next 12 months will be real estate.

“The single biggest capability we are still to build is real estate. It’s a complex asset class and particularly because we are looking to go direct.”

Another focus over the next little while will be how best to support partner funds with their passively managed holdings, which are managed outside of Border to Coast. Historically these have been market cap traditional passive mandates, however Elwell says that over the past couple of years there has been interest from partner funds to introduce an ESG tilt.

“As partner funds start to think about overlaying responsible investment into these, we are exploring how to ensure appropriate oversight and the most effective way for partner funds’ objectives to be achieved, as usual nothing is off the table,” she says.

And finally as the local government funds have been challenged by central governments to invest money in the United Kingdom, Border to Coast will help partner funds with that proposition and launch a UK Opportunities Fund.

Asset owners are increasingly under pressure to find alpha via active management because of declines in beta, but active investment may not offer a holy grail.  Speaking at FIS Maastricht, Rob Bauer, Professor of Finance, Institutional Investors chair; director of the European Centre for Sustainable Finance; Maastricht University highlighted challenges in active management around returns and fees.

Drawing on key points from research published earlier this year of which he was co-author, that looked at the active management strategies of the largest sovereign wealth fund in the world, Norway’s Government Pension Fund Global, Bauer argued that NBIM’s 200-odd active strategies weren’t making sufficient returns. Despite NBIM’s low active risk profile, many people work across the active programme in a complex process, but returns at the fund mostly derived from market beta.

NBIM’s active strategies also introduced a conflict of interest, he continued. For example, the sovereign wealth fund was seeking to beat the benchmark but also engage with companies to decrease carbon emissions. This typically leads to underweighting a company and therefore lower returns compared to the benchmark. “It is a trade-off – where do you use your resources?”

Arguing that academic evidence suggests it is very difficult to beat the benchmark in fixed income or equity allocations, Bauer warned investors active management is a “zero-sum game, minus costs.” Still, he noted that incentives for asset owners to adopt active strategies abound. Asset managers busily market active management, but there is little feed back via public statements on what these strategies have actually achieved.

Asset owners tend to mandate to active managers that have done well in the past but where performance subsequently declines. “After a period [managers] reverse to the mean,” he said. Typically, asset owners then take their money out and reinvest with better performing funds. “You end up with one flower in a field of flowers that don’t look so well,” he said.

The conversation also turned to the importance of asset managers measuring alpha against a fixed time horizon.  Manager selection is often based on three years, yet active strategies should match the time horizon of the strategy. Moreover, outsourcing active investment can amount to passing the buck – investors still need to understand the mechanics behind their active strategy.

Beliefs and testing

Fellow panellist Peter Kolthof, chief investment officer, PGB, countered that even small returns in active management can make a difference and are relevant. He noted that active investment involves consistency and should start with beliefs; it involves regularly testing assumptions in an approach that should be implemented throughout the portfolio, consistently monitored and results published. “It’s easy to generate outperformance if you don’t have a relevant benchmark,” he said.

Asset owners in the Netherlands are renowned for developing low cost, passive strategies. They are similarly renowned for developing numerous benchmarks, driven by ambitions to integrate ESG and reflect the wishes of participants, said Kolthof. The process raises questions about whether these strategies are still passive – after all ESG integration is an active decision to make the portfolio more sustainable. “These benchmarks make it subjective, and you get to a point where each fund has its own benchmark,” he said. “If you put more choices into the benchmark, what is left for active?” He noted that benchmarks can be implemented by third parties in cost effective strategies and bought off the shelf.

Still, he reasoned that the most important element is for asset owners to create a benchmark that incorporates all elements of their decision-making process. “To me, it doesn’t matter if it is active or not.” This approach allows investors to monitor and evaluate the investment process and consistently implement. Delegates concluded that labelling these strategies active or passive lies in the eye of the beholder.

Private markets

Investors are increasingly switching to private markets to access alpha, adding segments to their allocations that are outside the benchmark. Investing in private markets requires skill – and investing in fund of funds means investors risk losing the extra return in fees. Bauer also warned delegates to be careful interpreting private equity numbers; ask GPs how they calculate their return and if the IRR makes sense. Delegates also discussed the importance of valuing private market allocations correctly. Private markets lag public markets values and are likely to fall in line with lower public market valuations.

PGB is currently building out its private equity allocation in the hunt for niches and corners of the market it is difficult to access via the listed market. “We won’t seek exposure to segments that are available in listed markets,” said Kolthof.

Elsewhere, delegates questioned the extent to which UK pension funds will continue to move into private markets. The rise in bond yields has improved the funded status of many pension funds, meaning that they may reassess their private market allocations – high solvency levels could focus minds on getting rid of private market exposure.

The pandemic has exposed tragic fault lines and new levels of inequality, said Sharan Burrow, general secretary, International Trade Union Confederation, speaking at FIS Maastricht on the eve of her departure from the organisation where she has been general secretary since 2012.

Fault lines visible in the number of informal workers and the loss of women from the workplace. While inflation in food and energy following in its wake has made life much more challenging for families, causing more inequality and poverty, and pushing back the transition, she said.

Burrow linked companies’ struggle for talent to a “broken” labour market. Over half of the global economy works in the informal sector, with another large proportion of the world’s workforce in insecure work.

“The world of work is not serving anyone well,” she said. In a new Social Contract, she outlined key demands for workers spanning jobs, rights, social protection, equality and inclusion.

Returning to full employment is key for people to trust economies and governments again. She stressed the importance of creating more jobs in sectors spanning care to green infrastructure and technology. Without this kind of investment, the divisions between nations will grow, and with it discontent. “Trust in democratic institutions is so low,” she warned.

Companies need to be prepared to pay minimum living wages to build confidence in the economy and to ensure people can afford to support themselves through increasing shocks, whether climate or health-related. She said that more than half the world’s population has no social protection.

Burrow also sounded the alarm on progress around diversity. Women have lost out during the pandemic and involuntarily left the labour force in a damaging development for women and the global economy. Elsewhere, she noted a rise in racism, made worse by the lack of policy around refugees and inclusion.

SDGs

Burrow said the world will only deliver on the SDGs with global cooperation. But she noted “low ambition” at COP27, particularly around developed countries paying for damages inflicted on the economies of poorer countries. “Countries are not serious about the notion of a Just Transition,” she said.

The SDGs represent solutions but require countries to put people and planet first. “We are creating the seeds of our own destruction,” she said, highlighting how some US investors now  “rage” against integrating ESG.

“What is it they value?” she asked, urging delegates to value people, homes and an economy wrapped in democracy that gives everyone a fair go in the world. She said leaders have made a promise to achieve net zero, but are now forgetting the commitments they made.

She highlighted the role of the union movement in supporting the SDGs, particularly around equality and inclusion. Creating a shared future of common security and prosperity involves including people, and the unions that represent them, in that vision.

She noted how union uptake in the US is at record lows; workers are bullied to not join unions and employers close down operations to avoid unionized workers.

“Companies will do anything to oppress workers and keep them poor; to not sit at the table and not work with them,” she said. She concluded that many CEOs are not aware of the conditions for workers making their products further down their supply chain in a “hidden workforce.”

 

AP4, the SEK 459.1 billion ($41.4 billion) Swedish buffer fund, has been integrating sustainability since the 1970s. In those days, the key focus was scrutinizing corporate governance in the Swedish equity allocation. Today that focus has expanded to a broad ESG focus supported by AP4’s beneficiaries and Swedish government legislation.

However of all the risks under an ESG umbrella, AP4 views climate with particular concern.  Nearly a decade ago the fund concluded that climate and environmental risk wasn’t correctly priced and represented a significant systematic risk to the portfolio over the long-run. Particularly pertinent given AP4 invests with a 40-year horizon, longer than most pension funds.

Important milestones since include the buffer fund becoming one of the first investors in green bonds in 2012. In 2017, AP4 made ESG a formal investment belief, at which point sustainability became integrated by every investment team, sending a strong signal both internally and to the outside world.

“Today it is part of our DNA but at the time not everyone was happy and we faced resistance within the organization,” recalls Niklas Ekvall, Chief executive, AP4, speaking at FIS Maastricht. “But if we hadn’t taken that decision, we wouldn’t be where we are today.”

Sustainability was pushed out into the organization so that each investment team had to take responsibility to integrate sustainability in their own asset class. Because all investment teams now house their own sustainability expertise, AP4 only has a small dedicated sustainability unit, focused mostly on reporting.

“The bulk of our resources are in the investment teams,” says Ekvall. “The idea is that teams share and learn from each other, particularly around climate scenario analysis.”

Engagement

AP4 screens the portfolio on a regular basis, using external vendors to support the process alongside its own internal tools. It is publicly engaging with around 100 companies on all ESG topics, although climate engagement given its systemic risk in the portfolio and broadest impact tends to dominate.

“Engagement is a very strong tool for value and for influencing companies. We stand up for the right of equity owners to give their opinion,” he says.

The buffer fund is prepared to exclude companies if corporate engagement doesn’t progress to corporate change. A key reason for divestment is a company violating Swedish legislation or treaties Sweden has signed, and AP4 will also divest if it doesn’t agree with companies’ business models, particularly in sectors with a large climate impact.

Still, Ekvall is mindful that many energy intensive industries like steel and chemicals are producing goods vital for working society and a successful transition.

“Divestment would not be responsible,” he said. “If you want to have an impact, you need to be invested in these sectors.”

Stock picking

Investing in the energy transition has included fundamental stock picking, continues Ekvall. In a bottom-up process, the investment team finds companies that have a business model that will be viable in the future.

“Companies we own need plans and ambitions for the future,” he says.

This process has caused AP4 to reduce the number of energy intensive companies in its portfolio from 60 to around ten, comprising those with the most ambitious plans to reform. “These companies are part of the solution,” he said.

Carried interest ESG link

No corner of the portfolio is sparred integrating sustainability. AP4 views private equity as a compliment to listed equity, offering the ability to find exposures that are hard to come by in the listed market.

“Private equity is lagging behind in terms of sustainability,” he notes.

However, it is sometimes possible to integrate sustainability in private equity by pegging sustainable integration and success to carried interest paid to managers.

“We have introduced this into the terms and contracts with our private equity managers,” he says.

AP4’s 17 per cent allocation to alternatives includes a real estate allocation, long renown for its climate risk and responsible for between 20-40 per cent of portfolio emissions. AP4 works with real estate groups to plan for the transition including green construction, sustainably heating and cooling buildings and ensuring building waste goes into the circular economy.

“We still have some way to get to net zero,” he said, noting a need for better recycling markets.

AP4 promotes the introduction of a price on carbon because it would accelerate progress in the non-listed market. “The non-listed space is lagging,” he concludes.