Sweden weighs up ESG law for euro 80bn AP funds and ‘next step’ ESG investments

The Swedish government looks set to enshrine clear environmental, social and governance (ESG) investing rules into the legal framework of the management of the country’s giant AP pension buffer funds, which run approximately €80bn in assets to cover the country’s future pension liabilities. A report initiated by the government has also recommended that the AP funds take what it said was the ‘next step’ in ESG integration by developing investment strategies that specifically incorporate ESG aspects across all asset classes, not just listed shares. The report, overseen by Ulla-Carin Giertz, former head of asset management at the Swedish Legal, Financial and Administrative Services Agency, said the funds could also adopt targets that would limit the total carbon emissions of their investment portfolios. The Swedish AP funds (AP-1, AP-2, AP-3, AP-4, and AP-6 – AP-5 no longer exists) were created in 2001 and their initial legal framework obliged them only to take into account ESG factors with scant further reference as to what that might entail. The new report, titled: ‘Ethics, environment and pensions’, produced by the Committee on ESG issues for the Swedish National Pension Funds, said that the ESG remit needed to be more closely defined and working methods improved, including co-operation on ESG research and engagement, notablywith Swedish companies. It said: “In future, the funds should work more proactively and seek to integrate sustainability aspects into the investment management process.” In a related move, the report has also recommended that restrictions on corporate voting rights at the €7bn AP-7 fund be removed. AP7 differs from its AP peers because it is a default fund for non-choosers under the Swedish PPM defined contribution pensions system whereby Swedes get to choose a mutual fund into which they invest a portion of their social security payments. The report said the adoption of a set of ESG principles based on international conventions would strengthen public trust in the AP public pensions savings. It said that to date the consideration of ESG factors in investments by the funds had “not shown any demonstrably adverse effects”. Other proposals include an annual evaluation of the AP funds’ ESG work by the government and the building up of internal ESG analytical skills by the funds.
Separately, the Ethical Council for the AP funds, which advises the first four AP funds on engagements and exclusions, has issued its annual report for 2008, which lists 13 companies that the Council is currently engaging with on issues of concern.
Link to Ethical Council report