Stockholm (NordSIP) – New laws are set to govern the sustainability requirements for the Swedish AP state pension funds but with the Swedish government in limbo and AP investments in fossil fuel industries in the billions, it is unclear what impact these laws will have, according to criticisms from Greenpeace, among others.
A bill to tighten the sustainability requirements of the AP buffer funds was motioned by the outgoing Löfven government last June and is currently under consideration in the Finance Committee. The bill, however, does not propose a total ban on investments in climate-changing activities. The current bill concerns buffer funds 1-4. AP7 is part of the premium pension system for which another process for new management requirements is under way.
The buffer funds management rules have not changed since 2000. The new bill is not just about sustainable investment. The proposal also means that the requirement for a minimum percentage of interest-bearing securities with low credit and liquidity risk is reduced from 30 to 20 per cent, the restriction of holdings of unlisted securities is removed and replaced by a high proportion of illiquid assets, and the requirements to transfer a share of assets of at least 10 per cent of market value for external management are removed.
The Finance Committee will present its report on November 15 and the law is expected to come into force until the end of the year.
Despite active sustainability integration, AP funds 1-4 have increased holdings in oil giants such as Exxon Mobil and Chevron by nearly SEK 2 billion in the past year alone, alongside investments in U.S. pipeline companies involved in the transportation of oil sands and infringement on the rights of indigenous peoples.
Former Finance Minister Per Bolund lashed out at the funds in an interview with Dagens Industri in July, while underlining that the proposed bill puts in place a clear framework for exemplary and responsible management. However, whether the funds will comply with the new regulations is uncertain. “To a large extent, it can be said that the text that is written [in the bill] is a description of how the AP funds already work,” AP4 CEO Niklas Ekvall said in the same context.
That comment worries Rolf Lindahl, climate and energy campaigner with Greenpeace. “Unfortunately, the bill is a compromise. The funds are left to decide what ‘responsible and exemplary’ management means,” he told the online magazine Etc. “The Finance Committee must emphasise that the new rules imply a ban on investment in the fossil fuel industry and tighten the proposal.”
There will, however, be no such tightening, according to Ingemar Nilsson, who represents the Social Democrats in the Finance Committee. “ESG guidelines and criteria are stipulated to be taken into consideration by the funds,” he said, but this doesn’t amount to prohibition on investments in fossil industries. “Legislation is a square tool in this area. I think it’s more effective with political signals and follow-ups than calling out specific industries. The question was thwarted by the pension groups, such that it is no longer political,” Nilsson added.
According to the AP funds themselves, they retain fossil holdings in order to influence companies from within. But there is a difference between influencing a company that e.g. violated human rights and a company whose very business concept is the problem itself, e.g. fossil fuels, according to Lindahl.
“As a shareholder, one approves and legitimises the existence of a company. Responsible shareholders should of course try to influence companies they own in a sustainable direction, but in the case of the fossil industry, divestment is the only responsible policy. We do not have time to wait for reformist proposals at general meetings,” Lindahl said, adding that the question is not one about individual companies but that the entire energy sector has to transition from fossil to green energy within a very short period of time.
“Many say that sustainable investments already yield as good or better returns than fossil investments. The world’s largest state pension fund, the Norwegian oil fund, said recently that they would have earned NOK 300 billion had they sold their fossil holdings ten years ago,” according to Lindahl.