SWEDEN - The Swedish government's observer status in international conventions to stop the production of arms, such as cluster bombs, hinders the AP buffer funds from excluding companies linked to such arms production from their portfolio.

This is the claim of Carl Rosén, chair of the Swedish Ethical Council, established last year by the Swedish national Allmänna Pension (AP) buffer funds, AP1, AP2, AP3 and AP4 to "examine possible infringement of international norms and conventions." (See earlier IPE story: Sweden's AP funds launch joint SRI council to vet foreign equities)

It was revealed today the AP funds have increased their holdings in companies connected to the manufacturing of nuclear weapons and cluster bombs in the last half year of 2007.

AP1, which publishes its equity holdings on its website, for instance, increased its stake in companies such as Lockheed Martin, United Technologies, Raytheon, Honeywell International and Northrop Grumman between the end of June and the end of December 2007.

Rosén, also head of corporate governance and communication with the AP2 fund, said: "We have the same ethical guidelines as the Swedish state has."

He added: "The Swedish state has signed the non-proliferation treaty on nuclear arms, meaning that according to this treaty it is allowed to have nuclear weapons only within a couple of countries. And the companies that we are talking about here are selling products and services to maintain the nuclear arms within the limits of the treaty."

According to Rosén there is not yet a treaty to ban cluster bombs: "There there is a summit in Ireland in May where we hope that the Swedish state will sign a treaty that will give us guidelines when it comes to the definition of cluster bombs. And we are following this question closely, so we know the companies that produce cluster bombs,  what type and so forth."

The council is adamant as long the Swedish government does not have a treaty in place against the production of cluster bombs, the AP funds will not exclude companies linked to such production.

Asked about the council's raison d'être, Rosén explained: "The council's job is basically to make the interpretation of the conventions that the Swedish state have signed and make a judgment on how the companies can be associated with any violations of the conventions that Sweden has signed."

He added the council is to discuss next week on when to release a list of a number of companies in which it is in talks with. These companies are said to be either in violation of the conventions, or the council has started a dialogue about possible violation.

Eva Halvarsson, chief executive of Andra AP-Fonden (AP2), confirmed at last week's International Corporate Governance Network (ICGN) mid-year meeting on the "Impact of sovereign wealth funds and Nordic corporate governance", the ethical council had been in 'active dialogue' with 15 companies over the past year.

In her speech, she pointed out AP2 has more than 2,000 investments globally, so in order to keep track of the "ethical viewpoint", the set of conventions and treaties signed by the Swedish government has become their guidelines.

She revealed AP2 has already excluded certain investments including one company that had the ability to produce landmines, while Wal-Mart was also excluded on the basis that AP2 believed it "systematically violated worker and human rights".

Halvarsson claimed the fund has a "through process of screening" and since last year it has joined with the three other Swedish pension buffer funds - AP1, AP3 and AP4 - to establish a joint ethical council.

She confirmed the first annual report by the joint ethical council will be published next month, and will include all the names of the companies it is currently in 'dialogue' with.

As over the last year she said there had been 70 incidents, out of 120, which were considered serious breaches, and of these the council has an "active dialogue" with 15 companies.
Although Halvarsson also highlighted in the same period the council has made companies change their policies, as AP1, for example, spent five days of dialogue with a company before it finally agreed to stop allowing prostitution on their premises, she said.