AP2 demands performance metric on company share matching schemes, extends enviro assets

€22bn buffer fund moves into agriculture and timber alongside its existing green bonds allocation.

AP2, the SEK204.8bn (€22.2bn) second Swedish pensions buffer fund, is to demand clear performance targets from companies that offer employees matching shares for stock they have bought, saying their current vagueness is damaging corporate/shareholder discussions. Many Swedish firms, including Skandinaviska Enskilda Banken (SEB) and industrial groups Husqvarna and Atlas Copco, offer matching share plans to workers. However, the pension fund wants to lay down performance criteria for any share award: “We consider it to be a free share, given to employees without any counter-performance requirement, beyond the fact of being an employee,” the fund stated in its new Corporate Governance report for the second quarter.
The fund said it would instruct firms offering matching shares in their incentives to “explain their inclusion”. “Poorly formulated plans, lacking clearly defined ceilings and with only vague performance requirements – or with only a very limited connection to the development of the business – often lead to infected debate,” AP2 said.
Sweden’s government pensions buffer funds are taking an increasingly tough line on remuneration issues. Last week, Responsible Investor reported that Tredje AP-fonden, the SEK208.6bn (€22.2bn) third Swedish buffer fund (AP3), had voted down or abstained on executive pay proposals at 60% of the corporate AGMs it participates in outside Sweden from July 2009 to June 30, 2010.The fund said it had also made increased representation of women on corporate boards a priority for engagement with the companies it owns.
Over the year, AP2 said it had also extended its research into climate related investments and started investing in agriculture and forestry, saying that they offer the “dual benefit” of reducing its carbon footprint while diversifying portfolio risk. The fund disclosed that it had also invested in Flexenclosure AB, a Swedish firm which develops renewable energy sources for mobile phone networks, although did not say how much. The fund also said it was satisfied with existing investments in ‘green bonds’ issued by the World Bank and the European Investment Bank: “They yield a higher return than Swedish government securities of the same maturity, the borrowers are highly creditworthy and we are at the same time supporting projects that favour the environment,” said fixed income head, Ole-Petter Langeland. Another issue for AP2 is its engagement with mining firm Freeport-McMoRan over its operations in Indonesia.
Despite shareholder resolutions calling for environmental board representation at Freeport’s last two annual general meetings, which garnered almost a third of votes, the company is still rejecting the proposal. AP2 pointed out that rival firm Barrick Gold has recently let it be known that it will be appointing an environmental specialist to its board.