How many in the responsible investment world would like to be able to ‘oblige’ companies to be more sustainable?
Peter Norman, Sweden’s Minister for Financial Markets, is in that enviable position: a committed responsible investor who’s taken a role in government where he is holding state-owned companies to account on sustainability issues with a view to influencing the private sector.
Many in the institutional investment world will know Norman from his time as CEO at Sjunde Ap-fonden (AP7), the Swedish state buffer fund which he headed from 2000-2010.
It was while Norman was at AP7 that the fund was an early adopter of a norms-based model for responsible investment, meaning that it stopped investing in companies that committed violations of international conventions signed by Sweden.
In the early 2000s, AP7 was prominent in excluding companies on ethical grounds and in 2004 took a 5% stake in research house Ethix SRI Advisors. In 2008, AP7 was the first Swedish institutional investor to exclude cluster weapon manufacturers from its portfolio.
Now Norman is using his ministerial influence – he took the job in 2010 – to articulate a vision of the state as a responsible and “serious” investor.
There are 55 state-owned companies in Sweden, 40 of which are wholly owned. This list, which includes major enterprises such as energy firm Vattenfall, phone firm TeliaSonera and finance group Nordea, has an estimated combined value of SEK580bn (€66bn).
As part of a new initiative this year, they are being required to set out their sustainability targets and how they will achieve them by 2014. Norman says: “They have an owner who has been very explicit.”
He says sustainability is the responsibility of company boards and those of state-owned companies have to define and establish their own relevant sustainability targets and outline the overall strategies to achieve these targets. In short, it’s the directors who have to decide what ESG issues are material to the company.Says Norman: “If they don’t have expertise themselves they must find expertise elsewhere. Our message has been quite clear.”
Norman’s pressure is bearing fruit. At an extraordinary general meeting at the end of November, Vattenfall set out new financial and sustainability targets based around lowering emissions, growing its portion of renewable energy and setting targets for energy efficiency.
The new government initiative grew out of a policy first laid out in 2007 when Sweden became the first country in the world to require state-owned companies to report their sustainability efforts using the Global Reporting Initiative (GRI) standard.
“We don’t see any trade-off between sustainability and profitability”
He says the state “as a serious owner” has, of course, a fiduciary duty to its citizens to give them as good a return as possible. But, he adds: “The idea behind this is that we don’t see any trade-off between sustainability and profitability. By definition, we are long-term owners so we have time to wait for long-term profits. It is up to each individual company and each individual board to do this.” Another important factor, he adds, is that the process is measurable. Officials say there has been a very positive reaction from companies so far.
Going forward, the plan is to create a network for state-owned companies, where they can share their relevant experiences and discuss complicated issues.
It’s hoped that the government pressure on the state-owned companies will filter through to the private sector.
Norman says the objective of the exercise is to secure strong long-term value growth, not ‘sustainability’ for sustainability’s sake.
Asked whether he is drawing on his experience at AP7 in his current role, Norman says: “To a very high extent, to be honest. I started thinking in this way in the late 1990s.”