Swedish state funds’ ethics panel sets time limit on company engagements

Four-years to achieve engagement objectives

The Ethics Council of the Swedish state AP funds is going to limit its dialogue with problematic companies to four years, hoping in the future to avoid years of “meaningless” engagement with the likes of retailer Walmart and miner Freeport McMoRan.

Walmart and Freeport were among four companies (the others being Incitec Pivot and Potash) the panel recommended last year should be divested by the funds for violating international conventions following years of fruitless dialogue.

It’s the first time the panel has put time limits on dialogue, but it says that “as of 2014, no reactive dialogue will last longer than four years”.

“The reason for the new working method is that a number of dialogues have lasted for many years without resolution,” says outgoing Council Chair Christina Kusoffsky Hillesöy. The situation not only demanded extensive resources but was also the target of external criticism, she said. “For example, we engaged in a resource-intensive dialogue with Walmart for seven years but brought it to a conclusion in 2013 and recommended that the AP Funds divest it.

“We had failed to achieve our objective and concluded that the probability of succeeding was not great enough to justify using additional resources.”

The Council is also adopting a more flexible approach in its dialogues to address problems seen as a “grey zone”.There is a realisation that it is difficult to stick to strict targets for a dialogue, as the reality is “rarely a matter of black or white”. Thus a more flexible model was needed and a new colour-coded system of updates is hoped to improve transparency.

The report also details four successfully completed dialogues with AES (topic: Panama dam project); Toyota (Philippines labour issues): Alstom and Veolia Environment (both: Jerusalem trams). But a dialogue with Barrick Gold about discharges of mine waste into river systems has proven “unsatisfactory”.

In the report, Kusoffsky Hillesöy also addressed the departure of a group of Danish investors from the Principles for Responsible Investment (PRI) late last year over concerns about the governance of the initiative. “While the Ethical Council shares some of the concern, the advantages of supporting the PRI currently outweigh the disadvantages,” Kusoffsky Hillesöy said. The Council reckons that collaborating with other PRI signatories is a valuable process and that the PRI itself plays a key role in promoting responsible investment.

The panel, which advises four pension buffer funds known as AP1, 2, 3 and 4, pursued “preventative and reactive” dialogue with 133 companies around the world in 2013. A further 101 companies were engaged by service providers. The 26-page report – entitled ‘Impact Through Dialogue’ – is available here.