Two pension funds in the Nordics have taken opposing positions on financing the world’s largest oil company in recent weeks. Sweden’s Sjunde AP-fonden (AP7) was recently revealed to have bought SEK500m (€44.6m) of shares in Saudi Aramco, while KLP revealed last week to have ditched the oil group in addition to 11 other companies.
AP7’s move has been met with criticism because of the firm’s contribution to climate change, and the fact that it is majority-owned by the Saudi state, which is regularly accused of flouting international norms on human rights.
AP7’s head of ESG, Johan Floren, told IPE the fund’s investment corresponded with Saudi Aramco’s weighting in the MSCI All Countries World Index.
“With the exception of the companies we blacklist, we buy all companies in the MSCI ACWI,” he explained. “Saudi Aramco is part of ACWI and we have not blacklisted it, that’s why we own it.”
For Norwegian pension fund KLP, it excluded Saudi Aramco on climate grounds, following an assessment of human rights and environmental risks posed by companies in the Gulf States.
Floren said that if AP7 was “able to verify” that Saudi Aramco violated its expectations on human rights, environmental issues or corruption, it would also blacklist the firm “in order to bring about change”.
He added that the fund was “having a dialogue with KLP about the grounds for their exclusion to see if there is anything there that we should address”.
Last year, AP7 blacklisted 14 coal companies for failing to pursue a credible climate transition.
“Our fundamental belief is that companies all over the world need to transition and that our most important contribution is as active owners,” Floren told IPE.
KLP, on the other hand, has said that shareholder engagement with Saudi Aramco was likely to be fruitless.
“Since the Saudi state owns 90% of the shares in Saudi Aramco, it is, in practice, difficult for other shareholders to influence the company through the exercise of active ownership,” it said in a statement last month. “As such, the company appears to be associated with a particularly high level of risk.”
When asked about this, Floren said: “There are many companies with a large owner controlling the company that are challenging for active owners, especially in emerging markets, and Saudi Aramco is clearly one of them”.
“But we believe that this argument does not automatically make them hopeless cases. In this case, the picture is ambiguous, so we have not ruled out the company yet,” he continued.
He pointed to improvements that have been made in Saudi Aramco’s score from the Transition Pathway Initiative, which helps investors understand the progress companies are making on decarbonisation. Four years ago, the firm met seven of the 19 criteria, whereas now it meets 11.
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