The Swedish national pension fund, with $150 bn in assets, is taking a new approach to climate transition.

Christian Granquist joined AP7, one of Sweden’s national public pension funds – into which some 6 mn Swedes pay – in August 2025. Working alongside Jessica Eskilsson Frank, Granquist is senior portfolio manager, impact investments, climate transition at the globally invested fund that has total assets of around $150 bn.

Before joining AP7, Granquist – who has a master’s in economics from Uppsala University – had a 10-year stint at Lancelot and worked at Handelsbanken for 13 years in a number of roles including chief investment strategist and co-head, equities.

He talks to IR Impact about how the fund is changing, meeting management and investing in big polluters in order to drive change – without being an activist.

How’s life at AP7?

Pretty hectic but it’s good. There are a lot of things in motion and change, so it’s very interesting.

Can you explain a little about Sweden’s AP Funds?

There’s a big difference between the APs. AP2 to 4 are buffer funds for the Swedish income pension system. So, they will work as a buffer when the demography is declining. AP7 is completely different. It was arranged because part of the premium pension system in Sweden is based on choosing funds when the system was set up in 2000.

There had to be an alternative for those who actually don’t want to or can’t choose. So that was why AP7 was created. The fund started to get relatively big inflows from its inception in 2000. It was decided it would be a passive investment fund, which would buy passive strategies from other asset managers throughout the world. There was also an element of gearing on top of the global portfolio, which meant that over time the portfolio performed very well and outperformed a lot of the active managers.

A lot of people then started to actively choose AP7 because of the good performance and so it has rapidly increased in size and now has AUM of approximately $150 bn.

The large AUM figure has demanded changes and two things happened. One, we are considering to wholly or partly in-source the management of the passive portfolio. The second part is that part of the portfolio (10 percent of the total) will be managed actively in-house and with a climate-transition focus. And that’s where Jessica and I come in.

Of the $150 bn, how much is in equities?

It’s $130 bn.

And 10 percent of that will be in the actively managed climate transition fund?

It isn’t yet, but it will be. Jessica and I will be building up that portfolio over the next three years.

Can you explain AP7’s strategy going forward?

AP7 has radically rethought the way the fund management industry should be looking at sustainability. We want to do things differently from the rest of the industry.

The big difference is how we approach the question of sustainability. As you know, Scandinavia is a sustainability positive environment and how it’s been approaching the question of sustainability has basically been to choose companies with either a very low emission history or those who have already made a leap into transition. This means that the way to get a good sustainability rating in Morningstar or whatever, is to actively choose companies that don’t have an emission problem and/or sustainability problems.

AP7 has chosen another path. We’re saying that we won’t be making any (positive) change to the climate by choosing companies that don’t have to transition. We therefore must turn it upside down and look at the companies that have not been in scope for most asset managers. We’re talking about companies within the energy sector, utilities or chemicals. Industries which, generally speaking, have had very high emissions. The way to actually make a difference is to choose these companies, invest in them and actively work with them to choose a path towards transition.

Would you regard yourselves as activist investors?

No, we don’t use that term and we’re a government entity, but the approach is kind of more activist than pacifist, so to speak. We want to have a dialogue with investee companies but we want to do it together with the companies, their management and their boards because we are not interested if the company doesn’t want to make the transition or doesn’t have the capacity to do it.

But we are not an activist. We’re not trying to force anyone. We think that most companies will thrive by making choices that are sustainable. The whole point is to avoid being caught with stranded assets, which we think will happen to companies that do not choose to transition.

How would you describe your investment style?

Both Jessica and I come from a quality company/quality growth background. But it’s different now as we’re looking at energy companies, for example, and you can’t really call them growth companies or even quality companies because they are not.

They may be well run but they can’t control energy prices, for example, so they don’t have pricing power (often the sign of a quality company). While they may manage that very well, they have to cope with volatility in their earnings. So, it’s a different mindset.

So, you could invest in Exxon or Phillips66 for example?

Yes, hypothetically if we think that they have an interest and an ambition and the capability, financial and psychological, to make reasonable sustainable choices.

Any sectors you avoid? Defence for example?

AP7 does invest in defence. For our transition mandate of the Equity fund, we don’t look at ethics in a broad perspective but are focused on climate transition. We are trying to get as much bang for our buck by focusing on companies that are becoming more climate friendly and reducing emissions. So, we will evaluate the companies we invest in by how fast their emissions are falling.

What about screens?

We start by looking at how bad the companies’ activities are for the environment. We screen them for their emissions, if they are producing coal or fossil fuels etc. Once we’ve established a company has high emissions, the next step is the financial analysis. Does a company have both the cash flow and balance sheet to be able to make the investments to make the transition possible? We will avoid companies that have a weak profit history, a weak cash flow history and a weak balance sheet.

So you are basically looking for companies with ability to improve their emissions/sustainability?

Exactly.

Do you look at ESG scores and do you use external providers?

We do a lot ourselves as we have a large sustainability team working with us. We also use external providers.

Do you have an active share figure?

Not at this time as we are building out the portfolio (2025-2027). But the whole point is to have a high active share against a global benchmark because we aren’t looking at sectors such as technology (as most tech companies don’t have emissions issues). As well as investing in companies with high emissions and the ability to improve, we will also be investing in so-called ‘solution providers’ – companies that are actually providing these companies with tools to help them in their transition.

Would a company such as Quanta Services qualify as solution company?

As a company actively managing and increasing the grid capacity, which is vital for the transition, it could potentially be a solution company candidate.

Any market cap constraints?

We’re starting with large-cap companies (the larger the market cap, usually the bigger the emissions). We will then venture into smaller/mid cap companies. We will start with developed markets but will eventually be looking at emerging markets.

Average holding period?

Up to 20-30 years – so very long term, which is why we can be more contrarian than a traditional investor.

What about capital allocation?

We want the companies we invest in to use their cash flow and their balance sheet to make the relevant investments needed for the climate transition. Too many buybacks or too much dividend would be viewed negatively.

So, as above, our approach is a bit ‘the other way around’. You have to turn everything upside down a little bit.

Do you like to meet management of companies you’re considering?

Yes, it’s vital. Sometimes, it might be us and sometimes the sustainability team may join too. We like to be flexible, we do Teams meetings but it’s always preferable to meet in person, whether it’s at a conference, our offices or their offices.

To conclude, the sectors you’re most likely to be investing in are energy, mining, industrial, utilities?

Correct. Possibly also food manufacturing companies.

What do you think the geographic split will be?

Initially, the US and Europe.

For AP7, you and Jessica are the only people really to meet with US companies, because the rest of it is passive?

Correct, but we will probably be building the team as we go. And, for the record, the sustainability team also meets with US companies.

By Gill Newton, partner at Phoenix-IR. This interview also appeared in IR Impact on November 13, 2025.