Sweden’s Third National Pension Fund (AP3) has intensified its climate stewardship, urging high-emitting portfolio companies to adopt science-based targets and credible transition plans, while warning of a growing divergence between European and US investors on sustainability.

In its 2025 stewardship report, the fund revealed it is focusing on 53 of its largest emitters, which together account for 70 per cent of its listed equity portfolio emissions.

Of these, 29 have now set science-based climate targets, while 22 have targets aligned with a temperature increase of less than two degrees.

AP3 noted progress, with more companies moving closer to a 1.5°C pathway, but cautioned that many firms still lack robust transition plans and remain hesitant to commit to long-term goals.

“The science is clear – climate change is not a future scenario, it is already here,” the fund stated, emphasising that active ownership is essential to ensure companies act in line with the Paris Agreement.

With this in mind, AP3 has set a portfolio-wide net-zero target for 2045, with interim pressure on its heaviest emitters to improve disclosure, planning and execution.

The fund contrasted its approach with developments in the US, where several major asset managers have scaled back climate commitments or exited collaborative initiatives amid political pushback.

It described engagement in US markets as “significantly more complex”, but stressed it would “hold firm” as an active owner.

“During the year, we saw several indications of a decline in sustainability efforts,” said AP3 head of sustainability and governance, Fredric Nyström.

“Major asset managers, particularly in the US, have backed away from previously announced climate ambitions.

"Environmental, social and governance (ESG) is increasingly not being mentioned in investment strategies, as a response to a new political and media landscape,” he added.

Beyond climate, AP3 is stepping up work on biodiversity, having joined initiatives such as Nature Action 100 and identifying sectors most exposed to nature-related risks.

It has set a goal for its portfolio to contribute positively to biodiversity by 2030.

The fund is also expanding its focus on human rights through the AP funds’ Ethical Council, engaging with technology companies on issues such as misinformation, privacy, and child exploitation, as well as addressing supply chain risks in sectors including mining, textiles, and renewable energy.

Meanwhile, on the governance front, AP3 said it is pushing for stronger board diversity and sustainability-linked pay.

Indeed, it has set a target for all Swedish large-cap holdings to reach at least 40 per cent female board representation by 2026, with the current figure already above 43 per cent.

In addition, 43 per cent of portfolio companies with incentive schemes now include sustainability criteria, up from 25 per cent two years ago – meaning AP3’s target in this area has been met.

AP3 said its stewardship priorities remain rooted in its long-term mandate to safeguard the Swedish income pension system across generations, stressing that “when others waver, it is more important than ever for pension capital to be a stable voice for responsibility and direction”.

---