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​Report: Alternatives are ESG weak point for Swedish pension funds

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Pension funds in Sweden are increasing their alternative investments, but the quality of their sustainability management for these investments is poorer than the efforts they are making for traditional asset classes, a new report concludes.

In its latest annual analysis of the sustainability work of those Swedish pension providers which offer guaranteed products, Nordic consultancy Söderberg & Partners said that between 2009 and 2018, the proportion of alternative investments held by Swedish pension firms rose to 22% from 14%.

Lingyi Lu, sustainability analyst at Söderberg & Partners, said: “Our conclusions are that the pension companies take some account of sustainability when investing in alternative asset classes, but that the methods and processes are unfortunately still insufficient to ensure thorough transparency and management of all potential sustainability risks.”

In other words, she said, “everyone does something – but nobody does everything”.

The analysis included the alternative asset classes of hedge funds, private equity funds and companies, real estate and real estate funds and microfinance.

Data accessibility could be a reason for the lack of sustainability integration within alternatives, the firm said in the report, which covers the 12 Swedish pension companies providing traditional insured pensions and premium guaranteed pensions.

Difficulties in getting hold of information led to many pension companies conducting their own research and assessment of alternative investments from a sustainability perspective, Söderberg & Partners said.

“An overall conclusion is that companies’ sustainability work on alternative investments does not hold the same quality as their sustainability work on traditional asset classes,” it said.

Lu said Swedish pension companies were generally better than other Swedish and foreign managers on sustainability integration and active ownership in equity and fixed income management.

“Now they need to show the way, and take responsibility for their investments in alternatives,” she said.

The report also includes Söderberg & Partners’ yearly ranking of the firms’ sustainability work, which uses a traffic light ranking to judge each provider’s overall efforts.

The firms awarded the top level of green in 2019 Länsförsäkringar, for two out of three of its schemes, were Nordea, Skandia and SPP.

In the yellow category were Alecta, AMF, Folksam, Handelsbanken, Länsforsäkringar’s “Gamla” (old) pension scheme, and one of SEB’s schemes.

KPA, SEB’s “Gamla” scheme and Swedbank were listed in the red category for 2019.

Among movers, Länsförsäkringar – for two out of three of its schemes – and Skandia rose to green from yellow, while AMF and Handelsbanken dropped in the ranking from green in 2018 to yellow in this year’s report.

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