Engaging with companies over environmental and ethical matters is a more sustainable strategy than simply dumping the investments, reported the Ethical Council for Sweden’s AP funds.

Releasing its annual report for 2016, the advisory body said human rights, biodiversity, and anti-corruption remained areas of focus in its work last year, and singled out talks over the Thai fishing industry and Qatar’s foreign workers as examples.

Peter Lundkvist, senior strategist and head of corporate governance at AP3 as well chairman of the Ethical Council in 2017, said: “The Ethical Council has during the past 10 years worked with engagement as a means to solve problems and incidents that occur in business operations of investee companies. It is a sustainable strategy instead of selling the companies.”

Initially, remaining as owners and working for improvements had been a bit of a unique approach from the council, he told IPE – but it had since evolved “to become the standard for responsible investors.”

“We think it’s much better to stay on as an investor as long as you possibly can,” Lundkvist said.

“Of course you always come to some point in time when you feel it is meaningless, when the company isn’t listening to you,” he said.

The Ethical Council has a four-year process, and if dialogue gives no results within that time, then the investment is sold.

Sometimes divestment happens after a shorter period of attempting to engage, however, he said, citing the example of a Chinese mining company that did not respond to any of the council’s attempts to communicate.

However, most of the divestments made by AP1, AP2, AP3, or AP4 are decided upon without input from the council, Lundkvist said, because they do not fulfil the funds’ investment criteria on financial grounds or fall short of sustainability standards set by the funds.

Based on the mandate of the four main AP funds, the Ethical Council carries out both preventive and reactive work with portfolio companies, with the goal of having a positive effect regarding environmental and ethical issues.

As an example of this work, it said it was engaged in a large number of dialogues on forced labour and child labour in the cocoa and tobacco industries.