The Ethical Council of Sweden’s First to Fourth AP Funds has today presented its annual report for 2008, in which the Council reports on the past year’s progress in ongoing dialogues with companies suspected of violating the ethical guidelines governing the four Funds’ investments. The dialogues in 2008 were successful in several cases, and the Ethical Council can clearly see that it is making a difference.

The breaches 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. In 2008 the Ethical Council met face-to-face the majority of companies it is currently in dialogue with around the world and discussed the various cases of violations which the Ethical Council has called attention to. The companies have shown a serious interest in the Ethical Council’s views and most have taken steps to address the problems quickly.

One of many indications that the Council’s efforts are making a difference is the case of France-based Sodexo, which after contact with the Ethical Council quickly formulated and implemented a human rights policy following an incident at a refugee detention centre in the UK.

The company dialogues pursued by the Ethical Council are part of a systematic process used by the Council to identify breaches against the AP Funds’ ethical guidelines for investment. In talks with a few of the companies, the Council has chosen to cooperate with other investors to increase its leverage and the opportunities to exert an influence. The Ethical Council also supports a number of international initiatives aimed at achieving greater transparency in corporate reporting and promoting corporate social responsibility.

”It is satisfying to see that our dialogues with the companies are effective and that the companies can be persuaded to take action. This approach to bringing about changes and improvements requires patience and the establishment of mutual respect and trust, and is a strategy that is well suited to the long-term nature of the four Funds’ investments and professional relationships,” says Christina Kusoffsky Hillesöy, Chairwoman of the Ethical Council.

Read more about the Ethical Council’s company dialogues and activities in the past in the annual report for 2008, which can be downloaded from www.ethicalcouncil.com.

For more information contact:

Christina Kusoffsky Hillesöy, Chairman of the Ethical Council in 2009
E-mail: ethicalcouncil@ges-invest.com, Tel: +46 (0)8-555 17 123

About Ethical Council

The First to Fourth AP Funds (AP1-AP4) are buffer funds in the Swedish national pension system. The four competing AP 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 ethical and environmental policies of the Funds are therefore based on the core values of the Swedish Government as expressed through its foreign policy and signing of international conventions. 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 Funds’ ethical guidelines for investment.

The Second Swedish National Pension Fund/AP2’s result for 2008 is primarily attributable to the sharp decline of world stock markets during the year. Amounting to SEK -55.1 billion, this result corresponds to a return of -24 percent on net assets.

• The Fund’s capital assets totalled SEK 173.3 billion as per December 31st 2008, a decline of SEK 54.2 billion compared with the preceding year. During the year, the Fund reported a net inflow of SEK 0.9 billion. The net result for the year was SEK -55.1 billion. This sharp decline in capital assets is primarily attributable to the sharp decline of the world’s stock markets in 2008.

• The Fund posted a return of -24.0 percent on the total portfolio.

• The Fund posted a relative return of -1.8 percent for market-quoted assets, excluding commission fees and operating expenses. This weak result is attributable to a number of the Fund’s different equity mandates and some OTC-products that were poorly positioned in the period of extreme turbulence experienced by the financial market during the autumn. Furthermore, as a result of the financial crisis, almost all active investment mandates, in-house and external, underperformed simultaneously.

• The Fund’s return on unquoted holdings was -1.9 percent, of which real estate +0.7 percent and private equity funds -9.1 percent.

• AP-fastigheter, in which the Second AP Fund has a 25-percent interest, acquired Vasakronan in the autumn. This acquisition represents an important part of the long-term development of the Second AP Fund’s portfolio of unquoted real-estate assets. This increased the Fund’s exposure in real estate by 2 percentage points. The new company, which has assumed the name Vasakronan, is far and away Sweden’s largest real-estate company.

“This is without doubt one of the most serious financial crises since the 1930s,” says Eva Halvarsson, CEO of the Second AP Fund. “In spite of deciding to reduce risk in the equity portfolios under in-house management, to reduce the scale of our positions in fixed-income and exchange-market securities and to cancel a number of investment strategies completely, the decline in market worth was still substantial.”

The decline in market worth of the Fund’s portfolio of equities is the factor that has had the greatest impact on the net result. When seen in the context of the pension system as a whole, the significance of the Fund’s equity holdings is limited. The Fund accounts for only 3 percent of the Swedish pension system’s total capital assets, of which equities comprise a mere 7 percent.

“This means that we can adopt a long-term strategic approach, and we have chosen to retain a high proportion of equities. This ensures that we are well positioned to benefit when the market stages a recovery. It is important to remember that our mission as a fund manager extends over a very long period,” says Eva Halvarsson.

The English language version of the 2008 annual report will be published on our website, www.ap2.se, towards the end of February.

For further details, please contact the Second AP Fund’s CEO, Eva Halvarsson, on +46 (0)31 704 29 00, or the Fund’s head of Corporate Governance & Information, Carl Rosén, on +46 (0)739 40 10 10.

The Second AP Fund today publishes its 2007/2008 Corporate Governance Report. The Fund’s governance activities are presented together with a number of feature articles, covering topics such as Sovereign Wealth Funds, the exercise of voting rights at foreign AGMs, the environmental consequences of mining and the work of the Ethical Council of the Swedish National Pension Funds.

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

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.