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AP7 voting constraints 'should be lifted'

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  • AP7 voting constraints 'should be lifted'

SWEDEN - A Swedish government committee has recommended restrictions prohibiting the Seventh AP Fund (AP7) from voting in relation to its Swedish holdings should be removed while other constraints preventing AP funds from being an active owner should be reviewed.

In its report 'Ethics, environment and pensions', the Committee on ESG issues for the Swedish National Pension Funds stated the AP Funds had "dealt commendably" with a requirement to environmental and ethical considerations into account when investing.

However, it added: "Their remit needs to be more closely defined and their working methods improved. In future, the funds should work more proactively and seek to integrate sustainability aspects into the investment management process."

The report outlined a number of recommendations, including revisions to the Public Pension Funds Act, such as:

The removal of restrictions on voting rights for AP7; The incorporation of "preparatory" text requiring AP funds to consider ESG issues into law, and A limit on the number of AP fund board members to nine at the most.

The report also suggested to "consolidate and strengthen public trust", the buffer funds should adopt and follow a set of basic values or principles, which can be based on international conventions, on how the fund should operate on ESG issues.

In addition, the report addressed the issue of board and management remuneration - an ongoing issue in Sweden highlighted by the return of bonuses by the AP3 chief executive last month - and recommended the funds "must continue to actively encourage the development of a remuneration system that is moderate and transparent and provides incentives for well-judged risk-taking", as it could affect public trust in the funds. (See earlier IPE article: AP3 cuts management bonuses)

Other recommendations outlined by the report included a regular annual evaluation of the AP funds' ESG work by the government, and the suggestion that they "must build up a larger body of analytical skills of their own so as not to be too dependent on consultants".

It added: "While the AP funds have worked well in this sphere, there is potential for further growth and improvement in some respects". However it emphasised that the basic task of the funds - to help ensure good pension levels through high financial yields - "is in itself a fundamental ethical objective".

It also warned if an AP fund is faced with two alternatives, both of which meet the ESG requirements, and it rejects the one with the higher yield in favour of the one with the better ESG impact, it has failed to meet its fundamental objective as "neither on ethical grounds, nor on any other grounds, are the funds justified in deviating from their overall objective of a high rate of return".

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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