Swedish AP Funds Held to a Higher Standard

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    Stockholm (NordSIP) – Since 1 January 2019, Sweden’s first four National Pension Funds (AP Funds 1, 2, 3 and 4) have a new objective for their investment activities: the capital in the funds must be managed in an exemplary manner through sustainable investments and responsible ownership. Emphasis should be placed in particular on how sustainable development can be promoted without compromising the overall objective of high returns and low risk.

    To assess the funds’ adherence to this ambitious sustainability objective, on 26 April, the Committee on Finance held a public hearing on how the AP funds manage the buffer capital in the pension system. NordSIP tuned in to the intensive three-hour-long session held at Riksdagen, the Swedish Parliament.

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    The CEOs of the four funds, Kristin Magnusson Bernard, First AP Fund, Eva Halvarsson, Second AP Fund, Kerstin Hessius, Third AP Fund, and Niklas Ekvall, Fourth AP Fund, take turns explaining how their respective organisations work with sustainability and the new objective of exemplary management. For anyone who has been following the work of the funds, there are few surprises in the presentations. The funds tend to use the whole sustainability toolbox, from exclusions through engagement and thematical impact strategies. They all focus on similar areas, from climate change to human rights issues. Havarsson also mentions an up-and-coming theme, biodiversity.

    As for results, all CEOs seem proud of what they have achieved so far and have many impressive metrics and successful engagement stories to share. There are bursts of humility, too, however. “Alas, not all our investments are sustainable right now, but we are working to make them sustainable in the future,” says Hessius (in Swedish).

    Peter Lundkvist from the Third AP Fund briefly introduces the collaborative efforts of the four funds in the Council of Ethics. For those of us awaiting news on the council’s ongoing strategic review, however, he doesn’t disclose anything new on the subject. The revamp is still expected to be finished later this year.

    Several AP representatives mention the importance of being science- and facts-based when working with sustainability. It is, therefore, a nice touch that academia is also represented in the hearing. Emma Sjöström, a researcher at Misum, Stockholm School of Economics, focuses her presentation on divestment versus engagement for impact. Presenting the latest scientific findings on the subject, she emphasises its complexity and concludes that both tools have an essential role in affecting change through various mechanisms.

    Sjöström also echoes the funds’ CEOs when praising the Parliament for the flexible formulation of the sustainability objective, which leaves room for discretion to the experts in the implementation process.

    Both Auditor General Helena Lindberg and Minister for Financial Markets Max Elger (S) express a positive view of the way the AP Funds are meeting the legislative requirements for exemplary and sustainable asset management. The minister offers a glimpse of the latest assessment conducted in cooperation with McKinsey, to be published shortly.

    The panellists answer with ease the many and somewhat provocative questions from the party representatives, commenting on their investments in controversial defence stocks (including nuclear weapons), Russia, China, etc. They also seem in synch in their rather pragmatic approach to the EU legislation, such as SFDR and the Taxonomy.

    “The AP Funds value and encourage this type of hearing to ensure that Parliament and the public have an accurate and transparent picture of the AP Funds’ investments and sustainability work,” comments AP4 on its website. “I hope this is the beginning of a new tradition,” says Halvarsson.

    Julia Axelsson, CAIA
    Julia Axelsson, CAIA
    Julia has accumulated experience in asset management for more than 20 years in Stockholm and Beijing, in portfolio management, asset allocation, fund selection and risk management. In December 2020, she completed a program in Sustainability Studies at the University of Linköping. Julia speaks Mandarin, Bulgarian, Hindi, Russian, Swedish, Urdu and English. She holds a Master in Indology from Sofia University and has completed studies in Economics at both Stockholm University and Stockholm School of Economics.
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