Having the government take charge of ethical decisions, however, is not fully welcomed by the AP funds themselves, who implement their own guidelines. The funds also set up an ethical council this spring to assess the ethics of the non-Swedish companies they invest in.

“I don’t think there is a need to make any changes to our ethical policies,” says Kerstin Hessius, chief executive officer at AP 3. “I believe we are at the forefront when it comes to tackling ethical and environmental concerns and we have good policies for responsible investments and thorough procedures for working with the companies we invest in.”

Annika Andersson, head of corporate governance at AP 4, agrees: “I think our present system is good – we take a lot of responsibility for the companies we invest in. We have chosen a different path to Norway in terms of our ethical council with an emphasis on engagement rather than exclusion.”

Others, however, believe the government should have more say in matters. The Swedish Trade Union Confederation (LO), for example, has proposed to the government that parliament should decide on a framework for the AP funds’ ethical guidelines and ownership policies.

“The boards of the AP funds are focused on managing the assets and on the funds’ returns – as should be the case. But their competency is not necessarily ethical issues,” Wanja Lundby Wedin, president of LO, said in a letter to the government.

The LO is concerned that each fund has set up its own policies for ethics and ownership, each with varying levels of ambition.

AP 4’s Ms Andersson acknowledges the point. “The ethical guidelines are only mentioned briefly in our legislation, so there is room for interpretation,” she says.

The AP funds have also been publicly criticised for their choice of investments, most recently for investing in nuclear weapons and cluster bombs. AP 1, AP 2, AP 4 and AP 7 are all shareholders in companies manufacturing parts for nuclear weapons and cluster bombs, something the Norwegian government fund is banned from doing.

Reviewing the funds ethical guidelines has been on the agenda since 2004. The review, however, was put on hold in order to let the AP funds’ own guidelines gestate.

The committee, chaired by Ulla-Carin Giertz, will make suggestions for any changes to the AP funds ethical guidelines in November next year. It will look at the responsible investment policies of other large Swedish and foreign pension funds, the consequences on risk and return when pursuing such policies, and how to ensure public confidence.

“We will go through how the funds have tackled these issues and look at what others are doing. The Norwegian Government Fund’s ethical guidelines will also be reviewed next year and we will follow that process closely,” says Ms Giertz, the committee’s chairman.

Ensuring public confidence is of particular importance.

“The AP funds have almost Skr1 trillion of the Swedish pension capital under management. Therefore, it is utterly important that the funds also have the confidence of the public. With this review, I hope that we can shed light on what implication this has for the funds’ ethical and environmental considerations,” says Mats Odell, minister for financial markets at the ministry of finance.

The funds currently have an objective to take ethical and environmental issues into consideration without affecting their long time goal: good returns. This objective will not be changed.

The committee will have its work finished by 28 November 2008. In the meantime, the AP funds’ own ethical council will continue its work and will produce a report on its findings and the companies they are engaged with at the beginning of 2008.

The 3,500 companies that the AP funds invest in will be screened in order to identify possible violations of international norms and conventions. Each year, about 10 companies are selected for further dialogue to improve their records. The aim is to make three to five companies a year change their ethics. CL

In brief: the AP funds’ ethical investments

• The government has set up a committee to look into the AP funds ethical investments and their policies for corporate governance. It will publish its findings by November 28, 2008.
• The committee will evaluate the ethical guidelines and the corporate governance policies for AP 1, AP 2, AP 3 and AP 4. AP 6 is excluded from the evaluation, since it is governed by a different framework. It is also primarily involved in private equity investments. AP 7 will only be evaluated on its ethical policy, since it is has no voting rights over its Swedish holdings.

The structure of the Norwegian Government Pension Fund – Global, where the ministry of finance decides on ethical guidelines and on which companies to exclude, has been touted as one possible blue print for the AP funds.

• AP 1, AP 2, AP 3 and AP 4 formed an ethical council this spring to assess the ethics of the non-Swedish companies they invest in. GES Investment Services was appointed to carry out the screening work.

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