RI Interview: Alecta’s Magnus Billing on long-termism, SDGs and the High Level Expert Group

Leading Swedish investor celebrates its 100th birthday this year

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Alecta has owned each of its top equity holdings for at least 42 years, so it knows a thing or two about long-term investing. “And the reason one of them is only 42 years is just because that’s when it went public,” laughs Magnus Billing, who took the helm at the SEK800bn (€82bn) occupational pension fund – Sweden’s largest – last year.

The investor celebrated its 100th birthday this year, and has been working on ESG for a number of years. It has an active engagement programme with its investee companies which has so far seen it address money laundering controls at Nordea, governance issues at Wells Fargo, environmental and humanitarian disasters involving BHP Billiton and child labour concerns at Nestlé, among others.

“But one of the mandates I received clearly from the board when I joined is to even focus more on sustainability,” Billing explains. As a result, alongside its Head of Responsible Investment, Peter Loow, Alecta has recently appointed Carina Silberg as a Head of Sustainability, to oversee its sustainability reports and internal sustainability goals. Billing also says he wants the engagement work to become more transparent, so that stakeholders are more aware of Alecta’s efforts.

“It’s clear that if you’re a pension fund with an extremely long-term lens on how to create value for your customers, then you have to think a lot about sustainability. So it’s been a natural part of Alecta for a long time. But we realise that we have to do more – not just from an investment perspective, but so that we are able to continue attracting good, capable employees that can add value to us. It’s clear that the values of the younger generation require companies to have a truly meaningful set of views and processes around sustainability, so we need to prioritise that if we want to attract future talent and maintain a successful business.”

One of the areas Billing is pushing is Alecta’s work on the UN Sustainable Development Goals. As part of an initiative launched by Swedish aid agency SIDA, he is heading up a working group dedicated to enhancing investor engagement with Goal 8: “Promoting sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all”.

“We chose Goal 8 because we think it’s particularly relevant to Alecta. For us, good growth is the foundation of sustainability, and it’s created through enterprises that offer decent conditions to workers. And we represent workers. So it makes sense for this to be an initial focus for us. We are looking at others too, but we haven’t decided on those.”

The working group, which also includes Folksam, Investor AB and SIDA, will seek to “create standards and shared metrics”, Billing tells RI, partly by co-developing key performance indicators that investors can use to help integrate Goal 8 into their decision-making processes.The efforts will be tied into existing work being done around the SDGs by the Global Reporting Initiative and the UN Global Compact. The two sustainability bodies teamed up in March to announce plans to “create a clear and simple framework for the private sector to assess and report on their contribution to the UN SDGs”. A list of key indicators will be identified in July.

“My hope is that for now we will be able to feed something into that GRI work. After that, hopefully we’ll also be able to work on this separately in some way,” explains Billing.

As well as his work on the SDGs, Billing is one of 20 specialists chosen by the European Commission last year to form its High Level Expert Group on Sustainable Finance (HLEG) – the body tasked with creating a set of policy recommendations to help the EU establish more resilient long-term financial markets. The initial focus will be on environmental risks and opportunities, although Billing says he expects this to broaden going forward to cover wider social and governance areas, where relevant.

“I absolutely believe that Europe needs to lead the way on climate finance and show high ambitions in this space, particularly with what we see in the US right now. I believe that will require simplification, standards and greater supply: everything that can bring down transaction costs in this area. In order to do that effectively, the regulation needs to be high level, not just national. That’s why this group is so interesting.”

For now, Billing’s focus is on defining fiduciary duty – a hardy perennial in the responsible investment world – and he is heading a work stream on the topic for HLEG, through which he wants to establish “clarity on what we actually mean when we say fiduciary duty and how we connect that with ideas about sustainability”.

“For me, the entrance to environmental and social is always through governance, one way or another – that’s how we as investors and owners can make a difference: how we govern as investors and owners, as well as how we influence the way companies govern. And that’s why no matter what I’m looking at, I keep coming back to fiduciary duty.”

In addition, Billing hopes the group will develop “standardisation, taxonomy and labelling” for the green bond market, an asset class in which Alecta has invested more than SEK13bn (€1.3bn) – almost half of which was in the last quarter alone.

“Those are the things that could facilitate the investment work of pension funds and other institutional investors out there,” he says. The trend for sovereign green bonds, he adds, will also help scale the market and potentially reduce transaction costs for issuers and investors. “Plus, given the capital requirements we have as a pension fund, we will always have to invest quite a lot in government bonds, so it’s a great way for us to allocate substantial amounts of capital to green projects.”
HLEG will produce an interim report in July, to coincide with the G20 summit. Final recommendations are expected at the end of the year.