SWEDEN - Oil sand extraction is one of the key areas of focus in 2010 for the Ethical Council of the Swedish AP funds, through both dialogue work and joint initiatives.

Details from the council's 2009 annual report revealed that while the organisation - comprising representatives from the pension buffer funds AP1, AP2, AP3 and AP4 - had some success with company engagement last year, it had also recommended the exclusion of a firm from the investment universe.

The Ethical Council last year reported a 'focus list' of 13 companies with whom it was engaging in dialogue over alleged breaches of the organisation's ethical guidelines. It confirmed four companies - Grupo Ferrovial, PetroChina, Thales and Yahoo - have subsequently been removed from the list as several years of engagement has led the companies to address the group's ethical concerns. (See earlier IPE article: AP Ethical Council targets 13 investments)

Once a company is removed from the 'focus list' the organisation then moves its attention to other companies where there are concerns over ethical behaviour. At the end of 2009 the council was still involved in engagement work with 10 companies, including two new additions of Elbit Systems and Incitec Pivot, both of which are being targeted on human rights issues.

The report confirmed that the Ethical Council has now recommended that Elbit Systems be excluded from the portfolio of the four AP funds because of its links with the development of monitoring systems related to the separation barrier built on the West Bank in Israel. The four funds have agreed to the recommendation, which follows a similar step by the Norway Government Pension Fund Global in September 2009. (See earlier IPE article: Norway-Global excludes Israeli defence firm)

Annika Andersson, from AP4 and the 2010 chair of the council, said its work is based on a rigorous process where company dialogue is the main tool. "Staying on as a shareholder to continue the dialogue produces visible results, but it also requires resources and patience. As a last resort, the Council may recommend each fund excludes the company if the dialogue fails to produce the desired result. This is now the case with Elbit Systems," she added.

The report stated the council will continue dialogue with the nine companies - excluding Elbit Systems - on its 'focus list' in 2010, while it also intends to maintain its engagement work with mining and oil industry on the issue of oil or tar sands extraction: now the target of engagement activity by other pension funds. The Council said it has been working on the issue since "early 2007" to improve transparency and ensure extraction is "carried out in a manner that does not breach international conventions".

The council confirmed it has joined an initiative alongside 44 other institutional investors to write to 19 companies involved in oil sand extraction in Canada to raise its concerns. It has also formally declared its support for the Extractive Industries Transparency Initiative (EITI), in an attempt to highlight to countries and companies that shareholders value clear and transparent reporting of revenues.

The report stated: "In 2010, the Ethical Council will continue to engage in the mining and extraction industry, through both its own dialogue work and joint initiatives with other investors." There has been an increasing focus on the issue at the end of 2009 and early this year, as other institutional investors and pension funds also expressed concerns about the process. (See earlier IPE articles: NPRF already aware and engaged on tar sands issues;  UK pension members should question fund managers over tar sands and Dutch asset managers engage with Shell over tar sands)

At the same time, the Ethical Council has confirmed the appointment of John Howchin as secretary general of the council - a new role that Christina Kusoffsky Hillesöy, the 2009 chair of the council, said would help coordinate company dialogues and the investor initiatives supported by the Council.

She said: "The purpose of this appointment is to make us even more effective and focused in our strategy, and to develop our preventive and proactive work. We look forward to continuing our active ownership work in 2010."

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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