Earlier, Responsible Investor spoke to former CEO of AP4 Mats Andersson about his role as chair of Sweden’s green bond inquiry. Here he discusses his role at the Global Challenges Foundation.
Andersson is vice-chair at the Global Challenges Foundation (GCF), a body with a mission to find new global solutions and new forms of international cooperation to tackle today’s global challenges, especially climate change, violent conflict, extreme poverty and rapid population growth.
The GCF was founded by Laszlo Szombatfalvy, a mentor to Andersson, who came to Sweden during the Hungarian crisis in the mid-1950s as a refugee without any financial assets, and went on to become one of the most successful investors in Sweden ever.
Andersson explains: “Laszlo’s thesis is that today we have global, interlinked catastrophic risks but we don’t have a global governance structure that can deal with them. Those risks have actually outrun the current models. So we are trying to fix today’s problems with a toolbox of yesterday.
“We know that the UN is important. We know that the UN has done a lot of good. But it is an institution that is 70 years old and if it were to be redone today it would look completely different. It was designed given the threats we had at the time and the huge difference is that today’s risks are really, really global.
“Climate change doesn’t care about borders. And if 194 countries can sign on to the Paris Agreement and the outcome of the election in one country could jeopordise that agreement it shows something about the governance system.”
The GCF is currently running a competition to find a governance model able to effectively address the most pressing global threats. Viable designs could win a share of a $5m prize sum.
Andersson is a firm believer that effective governance is key.
“The Global Challenges Foundation focusing on the G [of ESG] is so crucial as that has been left out in many debates so far. But this goes far beyond running countries. It is running companies as well. And if you have a proper governance model it has to be transparent because this will lower risk, I think, and if you lower risk you’ll probably end up having a better return as well.”
During his speech at the Morningstar Conference in Amsterdam, Andersson illustrated how in his view the Swedish governance model has been a key driver of outperformance in Swedish companies.
Andersson says he identified this after the former CEO of AP4 questioned why it had one-third equity holding in Swedish companies and wanted to sell down.
Andersson decided to do some research in advance of this.
“Timed on a 5-10 year and a 15-40 year horizon, Sweden outperformed,” he told the audience.“The outperformance of Sweden compared to the MSCI World is 500-700 basis points due to better governance and ownership model in Sweden.”
In Sweden, the biggest shareholders of companies sit on the nomination committee: “In Sweden the buck always stops with the owner,” he tells RI. “By law owners meet once a year at AGMs and must vote on nomination committees.”
He compares it to the UK where he describes ownership as “fragmented”, he continues: “If you compare it to the US the AGM is a charade in my view. Companies are hijacked by management because they pick themselves, evaluate themselves and remunerate themselves. I think that’s much poorer governance. We have seen many mishaps due to poor governance.
“Elsewhere in the world there are different models. But I think those models that will work best are owner driven where you make the owner responsible for the company they own. This ought to go without saying, but that’s not really what we have today. But I think that will change going forward as well.”
Andersson says he doesn’t think the Nordic governance model can be duplicated around the world, but it can borrow elements.
“One of the most important things is to make sure that owners are responsible. I think it’s ridiculous in the UK where you have a say on pay where you engage and put it to the board of directors – I think it’s more important that you have got the right people there.”
Andersson says asset owners should at least engage when there is a change of chair. “If you look at BP and Shell – you should not just stop with resolutions. You should make sure your views and that your core values are represented on the board of directors. You cannot just leave it to others to decide and there have been many examples where they do no share the same core values as owners or investors.
“It you change the word investor to owner. With that word you will change your agenda as well.”
Andersson also says institutional investors, pension funds and sovereign wealth funds need to find a way to cooperate internationally.
“In my dream world you would have a coalition that would say, ‘Mats, you can vote for our holdings in Sweden because we know that you share the same values’. The other way around in the UK I would probably go to Saker [Saker Nusseibeh, Chief Executive Officer, Hermes] to vote our shares as I have the same values and so on.
“If I can speak at an AGM not only for AP4 but for ten big institutional investors globally it would make much more of a stronger impact. I think it’s a better way to go for proxy voting as that in my view has so many flaws.
“It’s probably totally unrealistic,” says Andersson. “But it was impossible to decarbonise – that is what they told me in 2010 but it was possible at the end of the day.”