SWEDEN - The Ethical Council of Sweden's First-Fourth AP Funds has confirmed it is currently engaged in "active" dialogue with 13 companies over breaches relating to human rights, labour laws, corruption and the environment.

In its first annual report, the Ethical Council published the names of the companies it is currently in dialogue with, and the status of the discussions, in an effort to "establish an understanding of the work we are doing".

The council was established in 2007 and consists of a representative of the four Swedish pension buffer funds - AP1, AP2, AP3, and AP4 - and is guided by GES Investment Services, an ethics consultant.

After examining the total holdings of the funds, which included a systematic screening process of 3,500 companies through the media, interest organisations and UN bodies, the council selected a 100 companies for closer scrutiny based on reports of claimed breaches of international conventions.

Out of a list of 20-25 companies with clear and well-documented problems, the Ethical Council revealed it works actively on governance in relation to approximately 10 companies a year, although at the beginning of 2007 it selected 12 companies, with a further two added in May 2007.

Of these 14 companies, the majority of problems related to environmental policies, closely followed by human rights and labour law issues, while corruption was an issue with just two firms in which the buffer funds have holdings. 

However, in addition to the companies on the focus list, the Ethical Council confirmed it also has an annual passive dialogue with Singapore Technologies Engineering, the only company to be excluded by all four buffer funds, to continue to call on the firm to cease manufacturing anti-personnel landmines.

The Ethical Council pointed out that a direct dialogue only begins after a period of intensive monitoring following a serious incident in one of its portfolio companies, at which point additional pressure is applied through co-operation with other investors and proposals and voting at annual general meetings.

That said, the Council admitted it would not publish details of 'ongoing' dialogues with companies as the success is "based on the presence of trust" between the Council and the companies.

But it admitted that if the dialogue and additional measures fail to achieve the desired result then the Council would "consider recommending each AP fund to sell its holding in the company".

The Council highlighted in its report the need for patience, and admitted that it had not expected to remove any companies from its focus list within the first year.

However, it revealed the US company Halliburton Corporation - which was accused of business ethics failings and bribery - was removed by the council at the end of 2007 as it "assumed responsibility for irregularities" and reinforced its anti-corruption programme.

Carl Rosén, the representative of AP2 and the new chairman of the Ethical Council for 2008, said: "This dialogue is the Ethical Council's most important tool for encouraging companies to act responsibly."

"Our discussions are aimed not only at pressuring the companies in question to address documented violations. As long-term investors we also want to see them implement preventative systems to avoid similar violations in the future," he added.

In addition, members of the council also visited China to examine how companies viewed social responsibility, and concluded that foreign investors in the region must continue to "make high demands on Chinese manufacturing companies" and to take "active responsibility" by promoting sustainable development "on several fronts in the country".

"We are convinced that when companies take their responsibility and make these issues an integral part of their day-to-day business, they are a better investment for us and ultimately also for Sweden's pensioners," added Rosén.

The companies currently in active dialogue with the Ethical Council - including the alleged ethical breaches - at the end of December 2007 were:

•    BHP Billiton - relating to a breach of labour law by allegedly preventing collective employment agreements 
•    Bridgestone Corporation - relating to a breach of labour law over accusations of using child labour in Liberia
•    Chevron Corporation - relating to two alleged problem areas - human rights issues in Nigeria and environmental work issues in Ecuador - where the AP Funds have exercised voting rights in both cases
•    Duke Energy Corporation - regarding environmental allegations about air pollution
•    Freeport-McMoran Copper & Gold Inc - over alleged environmental issues relating to its mining operations and accusations of bribery
•    Grupo Ferrovial S.A - regarding accusations of "environmental degradation" in the Amazon region
•    L-3 Communications Holdings - regarding alleged human rights abuses at Abu Grahib prison in Iraq
•    PetroChina Company Limited - relating to accusations about its environmental policy including the discharge of chemicals
•    Sodexho Alliance SA - regarding human rights violations related to allegedly inhuman conditions at UK immigration centres
•    Thales SA - relating to corruption allegations including bribery of South African officials
•    Toyota Motor Corporation - regarding labour law issues relating to accusations of anti-union activity
•    Wal-Mart Stores Inc - relating to labour law issues about allegations of the "systematic violation of workers rights"
•    Yahoo! Inc - regarding human rights issues over accusations of violations of freedom of expression in China

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