How AP2 works with Goal #5: Gender Equality

The €37bn Swedish pension fund explains its work on engagement and asset allocation to support female empowerment

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Diversity is one of AP2's focus areas within sustainability and the fund is actively working to integrate diversity issues into our processes. Diversity, and particularly increasing the proportion of women on boards and in management positions, was one of the first corporate governance issues that AP2 started to focus on. Since then, the fund has contributed to a positive development through, among other things, dialogues with companies regarding the selection process for boards and executive management teams. Today, the fund also has investments linked to diversity and equality, and diversity is one of the factors in our internally developed ESG indices.

Diversity in internally developed indices

At the beginning of 2018, AP2’s quantitative department transferred the internally-managed global equity capital to two internally-developed multi-factor indices – one for developed markets and one for emerging markets. In the index construction, exposure to various ESG factors such as equality and the proportion of women in leading positions is included. The new indices are fully in line with AP2’s mission since they are expected to provide higher returns at lower risk while considering sustainability aspects. They are an important part of our work on integrating sustainability into investment decisions. An evaluation of the rate of return requires a time period of at least five years, but there are indications that the factor of the proportion of women in the company from a global perspective has contributed to a positive return in the fund’s multi-factor indices. The effects have been stronger in developed markets compared with emerging markets.

Investments that focus on diversity

To increase the access to capital for women entrepreneurs and promote lending in emerging countries, AP2 has invested $30m in the Women Entrepreneurs Dept Fund, which is part of Women Entrepreneurs Opportunity Facility (WEOF). WEOF is a partnership between Goldman Sachs 10,000 Women and the IFC, one of five institutions at the World Bank. Through the investment, we can contribute to economic growth in emerging markets, with focus on sustainability and women’s entrepreneurship. Women in emerging countries are an underutilised resource and thereby investments in small and medium-sized enterprises owned by women helps to stimulate growth. The initiative also enables us to develop skills in diversity issues.

AP2 has also invested in a social bond issued by the World Bank that focuses on equality issues. The purpose of the bond is to increase knowledge on equality issues in general and to work for the rights of all women and girls, and thereby to promote economic growth, reduce poverty and create conditions for a more sustainable society. The bond is in line with the Sustainable Development Goals.

There are indications that the factor of the proportion of women in the company from a global perspective has contributed to a positive return in the fund’s multi-factor indices

Increase the proportion of women on boards

For many years, AP2 has emphasised the importance of an increased proportion of women on boards of listed companies, which receives particular consideration when we are involved in nomination work. The fund also believes that the nomination committees should establish a specific long-term plan for ensuring a good board composition including factors such as gender, age, background, experience and expertise.

At general meetings, we vote against proposed boards with no female members.

Female Representation Index

Since 2003, AP2 has measured the proportion of women at middle-management level, in company management teams and on the boards of Swedish listed companies. The information from the Female Representation Index is used in our corporate governance work and is followed up at the AGMs the fund attends during the year. AP2 aims to use its annual Female Representation Index to disseminate knowledge, contribute to dialogue and a factual debate, but above all increase the proportion of women on boards and in management positions. The fund believes that a broader recruitment basis contributes to diversity, which has a positive impact on boards and managements. With greater diversity of background and experience, the right conditions and leadership, groups become more innovative and creative, which in turn creates prosperous companies.

The Female Representation Index for 2020 shows that the proportion of female board members in companies listed on Nasdaq Stockholm has declined slightly for the first time since 2013 to 33.7%. The proportion of women in management positions is continuing to increase and in this year’s survey it was 24.3%. The proportion of women who are CEOs is also increasing and exceeded 10% for the first time. Nomination committees with women have a positive correlation with boards with a higher proportion of women. Boards without nomination committees have a lower proportion of female board members than other companies.

UN Women Empowerment Principles

In our work on increasing diversity, AP2 was one of 65 international investors to sign an initiative targeted at some 1,200 global companies. The initiative calls on companies to strengthen their sustainability work and increase transparency on it. In the petition, investors pledge their support to UN Women Empowerment Principles (WEP). WEP is made up of seven principles for greater gender equality and is supported by the UN Global Compact.

We can only agree with what the UN states in goal #5: “Gender equality is not only a fundamental human right, but a necessary foundation for a peaceful, prosperous and sustainable world.” 

Ulrika Danielson is the Head of Corporate Governance at Swedish pension fund AP2