The Second Swedish National Pension Fund/AP2 is selling its holdings in companies that market cluster munitions. These holdings are being sold on the advice of the Ethical Council of the Swedish National Pension Funds, which has studied the convention banning cluster munitions, a convention endorsed by Sweden in May 2008.

In its analysis, the Ethical Council has determined that the business operations of these companies contravene the convention. It has therefore recommended that the First to Fourth Swedish National Pension Funds should exclude these companies from their portfolios.

The companies to be excluded are:

• Alliant Techsystems (USA)
• GenCorp (USA)
• General Dynamics (USA)
• Hanwha Corporation (South Korea)
• L-3 Communications (USA)
• Lockheed Martin (USA)
• Poongsan (South Korea)
• Raytheon (USA)
• Textron (USA)

“The Ethical Council has carried out an exhaustive analysis of a large number of defence contractors and has concluded that these companies should be excluded as objects for investment by the First to Fourth Swedish National Pension Funds. The issue concerns inhuman weapons that often injure innocent civilians, an issue that demands action which now has the support of a convention that bans such weapons,” states Carl Rosén, who chairs the Ethical Council of the Swedish National Pension Funds.

For further details, please contact Carl Rosén, Chairman of the Ethical Council of the Swedish National Pension Funds, on +46 (0)31-704 29 00.

The Fund’s capital assets amounted to SEK 207.2 billion as per June 30th 2008, corresponding to a decline of SEK 20.3 billion since January 1st, including inflows. This meant that the Fund posted a return of -9.1 percent on its total portfolio for the first half of the year, excluding expenses. Return on assets less commission costs and operating expenses amounted to -9.2 percent. The net result for the period was -SEK 21.0 billion. The Fund’s portfolio of market-listed assets noted a relative return, excluding expenses, of -0.2 percent.

“It’s been a tough first half, which has been severely affected by concern over the state of the US financial market and its consequences,” says CEO Eva Halvarsson, Second Swedish National Pension Fund/AP2.

A Corporate Governance Report will be published separately in September.

For further details, please contact CEO Eva Halvarsson, Second Swedish National Pension Fund, or Carl Rosén, head of Corporate Governance & Communications, on +46 (0)31 704 29 00.

The Ethical Council of Sweden’s First-Fourth AP Funds has today presented its first annual report. In connection with this, the Ethical Council has published the names of the companies with which it is currently engaged in dialogue.

“This dialogue is the Ethical Council’s most important tool for encouraging companies to act responsibly. Our discussions are aimed not only at pressuring the companies in question to address documented violations. As long-term investors we also want to see them implement preventative systems to avoid similar violations in the future”, says Carl Rosén, Chairman of the Ethical Council.

The infringements of conventions identified by the Ethical Council are often indications that a company has not acknowledged its responsibility for incidents or taken an adequately proactive approach to environmental and social issues.

Pursuing a process of this type demands both discipline and a large portion of patience. Although the Ethical Council prefers to see continuous progress, there is an awareness that it can take time to achieve results. It is therefore a particularly satisfying that already during the Ethical Council’s first year, one of the targeted companies has taken the necessary action and subsequently been removed from the list.

“We are convinced that when companies take their responsibility and make these issues an integral part of their day-to-day business, they are a better investment for us and ultimately also for Sweden’s pensioners”, says Carl Rosén.

Read more about the Ethical Council’s working methods and first year of activity in the attached annual report (pdf).

Read the presentation from the press conference.

Download the pictures: Dialogues, Map, The funnel, Work process

Contact

Carl Rosén, 2008 Chairman of the Ethical Council
E-mail: ethicalcouncil@ges-invest.com
Mobile: +46 (0)73-940 10 10

About the Ethical Council

The First to Fourth AP Funds (AP1-AP4) are buffer funds in the Swedish national pension system. The four competing funds have a common mission: to invest Sweden’s pension capital so as to achieve the greatest possible benefit for the pension system and generate high long-term returns with a low level of risk. In doing so, the Funds must take ethical and environmental consideration without compromising the overall objective of attaining a high return.

At the beginning of 2007 the Ethical Council was formed to coordinate SRI analysis of environmental and ethical compliance in the foreign companies where the funds have holdings. The purpose of the Ethical Council is to combine the four funds’ resources and votes for greater leverage in influencing the foreign companies in which they invest to conduct their operations without violating the international conventions signed by the Swedish government.

The Second AP Fund’s capital assets totalled SEK 227.5 billion on December 31st 2007, an increase of SEK 10.7 billion compared with year-end 2006. During the year, the Fund reported net inflows of SEK 2 billion. The net result for the year amounted to SEK 8.7 billion.

The Fund noted a return of 4.2 percent on its total portfolio, before commission and operating expenses. Net return, less expenses, was 4.0 percent.

Since its inception, and including the 2007 result, the Second AP Fund has maintained an average return of 6 percent per annum. This means that the Fund’s result is consistent with the average targeted return deemed necessary for the Fund to fulfil its responsibilities within the Swedish national pension system.

For the twelve months ending December 31st 2007, the Fund posted a relative return of -0.4 percent on quoted assets, before commission and operating expenses. This was largely attributable to rebalancing effects deriving from high market volatility. A new rebalancing procedure has been initiated.

Return on alternative investments was 13.4 percent.

The growth in the Fund’s capital is primarily attributable to the strong performance of global equities, where the Fund’s investments in emerging and Asian markets, excluding Japan, have posted high returns. The Fund’s relatively limited exposure in foreign exchange (11 percent), especially in US dollars, where the degree of exchange hedging is high, has limited the impact of a weak dollar during the year on absolute return.

“The past year is likely to go down in history as one of exceptional turbulence on financial markets. Even so, the Second AP Fund is able to report a favourable return for the fifth year in succession,” notes CEO Eva Halvarsson, Second AP Fund.

For further details, please contact CEO Eva Halvarsson, Second Swedish National Pension Fund/AP2 on +46 (0)31-704 29 00, or Carl Rosén, head of Corporate Governance & Communications, on +46 (0)739 40 10 10.

Poul Winslow will leave his role as CIO for Andra AP-fonden by April 2008. Poul will begin in a new position at Nordea building a Fund of Hedge Funds business.

– We are sorry that Poul leaves AP2 and wish him the best of luck, comments Eva Halvarsson, CEO at AP2.

The search process for a new CIO has already started.

For further details, please contact Eva Halvarsson, CEO of the Second AP Fund, or Carl Rosén, Head of Corporate Governance & Communication, on +46 (0)31 704 29 00.

The Second AP Fund has published its Corporate Governance Report for the period July 1st 2006 to June 30th 2007. The Report, which addresses a number of different themes, is intended for a wider public, in the hope of stimulating discussion of a broader range of topics.

“Interest in and pressure on us as investors is growing all the time. Our ‘customers’ – Sweden’s future pensioners, our politicians, companies, the media, pressure groups and many others – are extremely interested in what we do, and we have often been bad at explaining how our processes work and about our role as investors,” says Eva Halvarsson, CEO of the Second AP Fund.

For further details, please contact Eva Halvarsson, CEO of the Second AP Fund, or Carl Rosén, Head of Corporate Governance & Communication, on +46 (0)31 704 29 00.

The Fund’s capital assets amounted to SEK 232.8 billion as per June 30th 2007, corresponding to an increase since January 1st of SEK 16 billion, including inflows. This means that the Fund’s total portfolio, excluding expenses, showed a return of 7.0 percent for the six months ending June 30th 2007. Return on assets less commission costs and operating expenses amounted to 6.9 percent. The result for the report period was SEK 15.1 billion. The relative return on the Fund’s market-listed portfolio, excluding expenses, was 0.5 percent.

“The Fund’s selection of strategic portfolio and its portfolio of Swedish equities, which outperformed index, have been the key factors in its strong performance during the first half of 2007,” states Eva Halvarsson, CEO of the Second Swedish National Pension Fund.

“Our determination to enhance efficiency with respect to the major portion of the portfolio under in-house management is now starting to bear fruit, resulting in a solid relative return and comparatively low costs compared to similar fund managers.”

In the spring of 2007, the UN agency UNEPFI (The United Nations Environment Programme Finance Initiative) cited the Second AP Fund as a leading role model for sustainability issues within the finance sector. A Corporate Governance Report will be published separately. The English-language version will be available at the website from mid-September.

For further details, please contact CEO Eva Halvarsson, Second Swedish National Pension Fund, or Carl Rosén, head of Corporate Governance & Communications, on +46 (0)31 704 29 00.

The United Nations has selected the Second AP Fund, with 14 other pension funds around the world, as exceptionally successful in addressing sustainability issues in the finance sector.

The United Nations Environment Programme Finance Initiative (UNEP FI) and the United Kingdom Social Investment Forum (UKSIF) have published a book in which a number of international pension funds are presented as leading role models for sustainability issues within the finance sector. The Second AP Fund has been selected as the sole Swedish representative.

UNEP FI and UKSIF have gathered examples of concrete and practical strategies employed by some of the world’s leading pension funds and presented them in this joint publication. These examples are intended to give other fund managers ideas as to how sustainability issues can best be integrated as part of the investment process.

More than 25 pension funds were initially considered for inclusion, 15 of which were selected for the published report. Examples range from the California Public Employees Retirement System (CalPERS) to the employees pension fund of Banco do Brasil (PREVI) and Fonds de Réserve pour les Retraites (FRR), France’s equivalent to Sweden’s “AP Funds”. The report presents a large number of strategies, featuring varying degrees of implementation, from Brazil, Canada, France, Norway, Sweden, Switzerland, Thailand, Holland, the USA and Great Britain. The Second AP Fund and Norska Statens Pensionsfond (Norway’s former Petroleum Fund) are the only Nordic examples included in the report. The report is available in its entirety on the Web at http://www.unepfi.org/fileadmin/documents/infocus.pdf

For further details, please contact Carl Rosén, head of Corporate Governance & Communications, Second Swedish National Pension Fund/AP2, on +46 (0)739 40 10 10

The Second AP Fund’s capital assets amounted to SEK 216.8 billion as per December 31st 2006, an increase of SEK 26.2 billion compared with the preceding year. During the year, the Fund reported a net inflow of SEK 1.7 billion. Net profit for the year totalled SEK 24.5 billion.

The Fund posted a return of 13.0 percent on the total portfolio, before commission fees and operating expenses. If these expenses are included, the portfolio generated a return of 12.8 percent.

The Fund noted a relative return of 0.2 percent for market-listed assets, before commission fees and operating expenses, for 2006. All asset classes noted a positive relative return. This positive return derived largely from successful in-house and external management of foreign equities.

The vigorous growth in capital assets is primarily attributable to the high proportion of equities in the Fund’s portfolio and a low level of currency exposure. The level of currency exposure as per December 31st 2006 was 11.7 percent.

The proportion of the Fund’s total portfolio managed according to quantitative models has grown from 11 to 31 percent.

A Joint Ethical Committee has been established in collaboration with the First, Third and Fourth AP Funds, to monitor interests in foreign companies with respect to environmental and ethical issues.

Since its inception, and including net investment income for the twelve months ending December 31st 2006, the Second AP Fund has sustained an annual average return on investment (ROI) of 6.3 percent. This exceeds the ROI average considered essential for the Fund to fulfil its long-term responsibilities within the Swedish pension system.

“We are proud of this result. The total return on investment is good and all asset classes have noted a positive relative return,” says CEO Eva Halvarsson, Second AP Fund.

For further details, please contact CEO Eva Halvarsson, Second Swedish National Pension Fund/AP2 on +46 (0)31-704 29 00, or Carl Rosén, head of Corporate Governance & Communications, on +46 (0)739 40 10 10.

Through the formation of an Ethical Council, Sweden’s national pension buffer funds, AP1, AP2, AP3 and AP4, have coordinated their SRI analysis of environmental and ethical compliance in the foreign companies where the funds have holdings. The collaboration will involve monitoring of the funds’ investment portfolios with regard to violation of international conventions, analysis and dialogue with the portfolio companies. This collaboration does not extend to Swedish companies, for which the respective AP funds will continue to conduct their own dialogues and analyses.
In a recent procurement of consulting services for ethical and environmental analysis, the four AP funds all chose the same supplier, GES Investment Services. The funds’ collaboration will be based on a systematic screening of their investment portfolios in order to identify and examine possible infringement of international norms and conventions, an analysis for which GES has been given responsibility. In addition, GES will support the funds with assistance in individual dialogues, analyses, advice and coordination of the Ethical Council’s activities.

A total of around 3,500 companies will be reviewed, which, based on earlier experience, typically leads to the identification of some twenty candidates for more in-depth assessment. Every year, the ambition is to conduct an active dialogue with around ten companies that can be associated with infringement of international conventions in areas related to the environment, human rights and labour rights. Coordination of the AP funds’ activities will give international investors a powerful partner in Sweden with an active commitment to the ethical and environmental aspects of corporate social responsibility.

“Within the framework of our common mission, we see good opportunities to cooperate in this area. By joining forces we will enable us to avoid redundant efforts and concentrate our resources on the most urgent areas for improvement,” says AP1’s Nadine Viel Lamare, who will be the Ethical Council’s first Chairman.

“Together the funds have net assets under management of around SEK 800 billion, which in itself provides greater scope to influence individual companies than if each fund were to act independently, and we will also be able to conduct more parallel discussions. Furthermore, by coordinating our activities we will facilitate collaboration with other international stakeholders who are actively committed to ethical and environmental compliance,” she adds.

AP1 has previously cooperated with other investors in a number of successful dialogues with multinational corporations which have changed their routines and policies in response to pressure from the Fund. Most recently, the US-based Marriott hotel chain was persuaded to revise its human rights policies with a focus on combating child sex tourism.

The Ethical Council’s is made up of one representative from each of the AP funds. Chairmanship of the Ethical Council, which is initially held by AP1’s representative Nadine Viel Lamare, will be alternated between the funds.

Decisions to exclude companies from the investment portfolio will be made by the individual funds.

For more information contact
Nadine Viel Lamare, Chairman, Ethical Council
Tel: +46 8-566 20 270
Mobil: 0+46 709-681 270
E-mail: nadine.viel.lamare@ap1.se