Swedish state fund AP7 tenders ESG analysis, screening and advisory

Incumbent suppliers are ISS’s Ethix and GES

One of Sweden’s buffer funds for its state-run pension system, Sjunde AP-Fonden (AP7), is considering new options for several of its key ESG investment activities, including engagement, screening and proxy voting, after releasing a procurement tender for new service providers.

AP7 is the government’s default fund for the premium pension system and the tender, which closes on September 28, says AP7 is searching for service providers in two areas: one to take care of the fund’s norms-based analysis and engagement, and another for support in AP7’s thematic approach to ESG issues.

AP7’s norm-based service currently encompasses screening and analysing the fund’s holdings for companies involved in breaches of international norms outlined in its policy, as well as pooled engagement with other investors on breaches of these guidelines, company blacklisting and, to some extent, proxy voting.

These services are at present provided by Ethix SRI Advisors, a Stockholm-based service provider bought by ISS in 2015, and GES Investment Services. AP7 has carried out work in this area since it was founded more than 10 years ago.

According to Johan Florén, head of communications and ESG at AP7, the procurement does not mean that the fund will necessarily end its relationship with either Ethix or GES, but a reflection of the changing landscape for ESG service providers.

He added: “There are no major changes planned, we just want to make sure we have the best provider there is for the most effective solution. There are new actors on the scene and we do not know exactly what service providers can do.”The second area identified by the procurement covers AP7’s thematic approach. At present, the fund maintains three parallel areas of thematic investing, engagement and review that run on a three-year cycle: the relationship between private equity and ESG, in place since 2014 and due for renewal this year, climate change, in progress since 2015, and, as of 2016, fresh water.

The document explains that each year a new theme will be introduced and an existing area concluded. Florén explained that these activities were carried out internally but with ad-hoc input from service providers, a structure which means that sometimes the fund missed the ability “to go deep on a given issue”.

Work in this area, the document explains, may involve identifying “bespoke active ownership projects” such as engagement dialogue with investee companies, voting activities or projects and interaction with other market players to influence standards and norms.

Florén explains that crucial to AP7’s future work is maintaining a perspective of universal ownership, a desire to influence the market rather than just individual players and to help create a ‘soft law’ approach with other investors “that push companies in the right direction”.

AP7 has previously been involved in several high-profile engagement activities in recent years. In January 2016, the Swedish fund backed a Yale students’ resolution at ExxonMobil that asked the oil company to report on payments it had made to anti-climate change lobbyists, while in October 2015 it joined three other AP funds in asking 11 major carmakers to improve their reporting on public policy interventions surrounding emissions standards.