Stockholm (NordSIP) – Since establishing a dedicated sustainability team and appointing Fredric Nyström as Head of Sustainability and Governance in May 2022, the Third Swedish National Pension Fund (AP3) has been busy developing systematic, comprehensive, and detailed action plans for each of the four focus areas previously identified: Climate, Human Rights, Corporate Governance and Biodiversity. On 13 October, AP3 announced that the task had been completed for one more of these areas, Human Rights. The pension fund’s newly published action plan contains a concrete strategy for managing human rights risks both at country and company level based on the UN Guiding Principles on Business and Human Rights.
“For the world to accomplish a just and sustainable climate transition, it is key that human rights must be respected by countries as well as by companies,” comments Fredric Nyström, Head of Sustainability and Governance at AP3. “Our new action plan describes how AP3 works to respect human rights, including our priorities and goals. We also clarify our expectations of companies, not least those with long value chains and operations in countries and regions with a high human rights risk,” he adds.
The action plan outlines a two-step process for assessing human rights risks. First, the fund evaluates countries based on critical governance parameters such as democracy, respect for human rights, freedom of expression, rule of law, justice and corruption. According to Nyström, at country level, the analysis process is primarily a risk management tool that is expected to reduce the investment risk in the fund’s allocation to emerging markets, for example. Investments in countries with poor governance are more likely to develop in an unsustainable direction, exposing the fund to undesirable risk.
Step two in the process is an ongoing screening of the fund’s portfolio to identify high-risk sectors and companies. “In addition to the country perspective, AP3 has selected a number of sectors where we believe companies have an elevated risk of violating human rights,” explains Nyström. “Investments in companies in these sectors require a more in-depth analysis.”
As a responsible asset owner, AP3 does not intend to shy away from such high-risk investments altogether, provided they can demonstrate an ambition to tackle human rights issues. “We will engage in advocacy dialogues with the identified companies,” says Nyström. “In our newly published action plan, we describe our expectations of the companies regarding how they should manage human rights. These expectations will be the starting point for our engagement work.”
Nyström has high hopes for the outcome of this approach. “Now that we have identified our most critical risks, we will be able to work in a more focused and, therefore, more efficient way,” he says. “This in itself increases the likelihood that we will be able to succeed in our dialogues, even if we are humble and recognise the challenges we face.”
While active corporate governance can be a powerful tool to influence companies at risk of violating or breaching human rights, it is when pursuing impact together with other investors and stakeholders that the method is most efficient. Acknowledging this, AP3 has joined several relevant cooperation initiatives, including the Investor Alliance on Human Rights and PRI Advance.
Through its considerable investments, AP3 is clearly in a position to influence how companies handle human rights. It is laudable that the pension fund has chosen to prioritise managing the most serious risks based on their potential impact on people rather than the risks to AP3 and its investments. NordSIP will closely follow the outcome of the fund’s work with human rights outlined in the new action plan.