Sweden’s national pension funds, the AP funds – and its government – should do more work on sustainable investment, even though an “appropriate” level of effort is being made at the moment, the Swedish National Audit Office (NAO) has concluded.

In its 2021 report on the AP funds’ sustainability work – investments and corporate governance, the Swedish NAO (Riksrevisionen) said:  “The National Audit Office’s review shows that the AP funds’ sustainability work is reasonable and expedient in relation to their assignments.”

Sustainability was reflected in the funds’ governance documents, it said, and had been integrated into the funds’ asset management and corporate governance.

“However, the National Audit Office judges there to be measures that both the AP funds and the government should take in order for the resources under management to further promote the Riksdag’s [parliament’s] goals and intentions for sustainable development,” it said.

The government’s part in this was, it said, to make the same legal requirements apply to all AP funds.

As things stood, the NAO said the first four AP funds had a statutory sustainability requirement, and this was in the pipeline for AP7, but that AP6 – which invests solely in unlisted equity – was not covered.

“Placing the same requirements on all AP funds should strengthen the efficiency and legitimacy of sustainability work,” said Helena Lindberg, auditor general.

“It also clarifies the responsibility for considering sustainability and creates better conditions for achieving the goals in the area of sustainability,” she said.

The NAO also said the funds’ social sustainability goals should be clarified so that they reflected the funds’ long-term ambitions in the area.

The AP funds’ corporate governance work should be made clearer, it said, in order to make it easier for follow up the results of those efforts.

“The funds also need to ensure that their corporate governance is focused on companies and areas where they have the greatest opportunity to influence, and produce the greatest benefit,” said Per Franzén, project manager of the review.

In a joint statement, the four main buffer funds in the AP funds system, AP1-4, said the review showed their sustainability work was appropriate in relation to the assignment, and also confirmed that they had established processes and integrated sustainability into investments and corporate governance.

Acknowledging the recommendations the NAO made, they said: “This is not unique to the AP funds, but something the entire industry is working hard on.

“The report highlights the challenges that the AP funds and all other corresponding investors have, in Sweden as well as internationally, in terms of reporting in a simple and easy-to-understand way the extensive, difficult and complex sustainability work that is conducted,” they said.

The four funds also said the recent McKinsey report conducted for the Finance Ministry in 2019 showed the funds were “at the forefront of sustainability compared with leading institutional investors globally and continue to improve their work in line with the rapid development in the field”.

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