Sustainability to be a legal requirement for Sweden’s restructured AP funds

Government announces wide-ranging revamp of buffer fund system

The Swedish government’s planned restructuring of the five AP buffer pension funds will for the first time entail a legal mandate for them to invest sustainably, a spokesman for the Finance Ministry has confirmed.

The government late last week announced a sweeping reform of the current funds’ structure that will result in fewer funds in a bid to cut costs and boost efficiency.

Until now, the five schemes – AP1, AP2, AP3, AP4 and AP6 – have been investing sustainably on a voluntary basis and indeed are global leaders in that space. AP6 differs from its peers in that it solely invests in unlisted shares, often via direct investments and with seats on company boards.

A government spokesman told Responsible Investor that as part of the revamp, “we’re going to write into law that they will be obliged to respect certain ethical and ESG (environmental, social and governance) criteria.”

In March of last year, Sweden’s six political parties agreed that reducing the AP funds from five to three was necessary. Details of the move were unveiled on June 18, revealing that AP6, the smallest of the five, would be merged into AP2. As to the fate of AP1, AP3 and AP4, a decision will be made later in the legislative process.

In a statement, Per Bolund, the Swedish Financial Markets Minister and Green Party politician whooversees the funds, also alluded to a “strengthening” of the schemes’ sustainable investment strategy.

It follows Bolund telling the RI Europe event in London earlier this month how he wanted Sweden to be a global role model for sustainable development leadership.

“We’re going to write respect of ethical and ESG criteria into law.”

According to the spokesman, this means a legal mandate that the funds respect ESG criteria. As to the cost savings realised by the restructuring or the jobs that may be lost, the Ministry spokesman said the government has not yet released any figures.

Ossian Ekdahl, Head of ESG at AP1 and head of the funds’ Ethical Council, the panel which advises on corporate exclusions, says that because the schemes are already doing sustainable investment voluntarily, not much would really change. The government says the status of the Ethical Council is not a question for the government but rather for the AP funds themselves.

The restructuring will also see the creation of a National Pensions Board that is to represent the interests of the remaining three schemes.