Andra AP-fonden is a responsible and committed owner, and is actively engaged in issues that promote professional corporate governance, good ethics and enhanced environmental performance, as well as developing good practice in asset management issues. The Fund’s corporate governance objective is to create value. In the long term, this work will increase the Fund’s return and reduce the financial risk. The Fund’s starting point is that well-managed companies have greater opportunities to generate profits and avoid risks. It is therefore important to seek to influence the companies in the direction that the Fund considers to be most successful.

Goals

Active and responsible ownership through an increased number of dialogues with and voting in all of the Fund’s listed shareholdings by 2027.

Analysis and materiality

The background to the Fund’s corporate governance work can be found in its overall mission. An expectation of responsible ownership is stated in the Swedish National Pension Insurance Funds Act. The Act states that the AP Funds must be managed in an exemplary manner through responsible investments and through responsible ownership. In its investment management, special importance must be attached to the promotion of sustainable development without sacrificing the overall goals for return and risk.

AP2’s corporate governance work focuses primarily on companies and areas where the Fund believes it has the greatest opportunity to influence and have the most benefit, and which have the greatest long-term financial significance for the portfolio. In Sweden, AP2 primarily deals with corporate governance issues in companies where the Fund is among the largest owners, and/or in companies in which the most capital is invested. AP2 also promotes good corporate governance by cooperating with other owners on matters of principle and actively contributing to the development of policies, regulations and standards.

Integration

Corporate governance is an integral aspect of the Fund’s investment process for both listed and unlisted equity investments.

• The Fund’s Swedish equity management team, which has a fundamental focus on its portfolio, works daily with corporate governance-related issues through its close and continuous dialogue with portfolio companies.
• A large proportion of the Fund’s global equity holdings are managed within the framework of the Fund’s internal quantum management, where factors that are important from a corporate governance perspective, together with other sustainability factors, are integrated in the design of the portfolios’ multi-factor index. As a result, sustainability aspects are included in the first step of the investment process – selection of portfolio companies. Ongoing monitoring and assessment of the outcome of these factors ensures that the Fund has a consistent common view of which factors affect a company’s value and development within the framework of corporate governance. AP2 annually selects a number of companies in which the Fund has significant holdings and in which corporate governance issues have been identified, to have a dialogue with the respective companies, either on its own or together with other investors, in order to improve, or in any case point out, assessed deficiencies.
• The corporate governance perspective is also an important aspect of the Fund’s unlisted holdings, both before an investment and during ongoing monitoring.

Engagement

Corporate governance is one of the Fund’s primary engagement instruments for driving change in all focus areas related to sustainability, primarily through voting and dialogue. AP2’s operational work is based on the Fund’s ten corporate governance principles, which should be seen as guidelines, rather than fixed rules.

Read AP2’s Corporate Governance Policy

Voting as the primary tool

AP2 is active at both Swedish and foreign general meetings, which includes dialogue with the boards and managements of the Fund’s portfolio companies before and at general meetings, as well as participation by voting. Among other things, the Fund votes on board elections and other important issues that affect our investment. The Fund’s starting point is to support the Company’s proposals, but also to clarify the Fund’s expectations and position.

See how the Fund voted in companies

Voting Guidelines have been put into place to supplement the existing corporate governance policy and for a greater understanding of what AP2 expects of companies in such areas as sustainability and corporate governance.

Read the voting guidelines

Corporate governance in Swedish companies

The Fund holds shares in about 160 Swedish companies. The Fund has determined that for practical reasons it is not possible to vote at all general meetings in the Swedish share portfolio. Companies at whose general meetings the Fund will vote are selected on the basis of a number of criteria:

• Companies that are among the Fund’s 20 largest holdings.
• Companies in which the Fund’s share of voting rights is at least 0.3 per cent
• Companies in which the Fund is among the ten largest shareholders.
• Companies with controversial issues on their agenda.

For many years, AP2 and other institutional owners have maintained a good, constructive dialogue with Swedish listed companies on various issues, including many of those addressed at general meetings.

Corporate governance in foreign companies

To improve corporate governance in its foreign holdings, since 2008 the Fund, together with AP1, AP3 and AP4, has had a joint electronic voting platform, based on the Funds’ corporate governance policies. Most issues are dealt with automatically via the platform, while others, such as remuneration, are sent to the Funds for manual assessment. Each Fund makes its own decision on how it will vote.

The Fund votes at general meetings in more than 40 different countries, primarily in the USA, China, Japan and India. It is primarily the Fund’s multi-factor index for both developed countries and emerging markets that constitutes the selection criterion for which companies the Fund votes in. Other criteria include dialogue between the Fund and the company on a particular issue and/or the Fund’s submission of a shareholder proposal to the general meeting.

How the Fund votes on certain issues

Election of board of directors

Each company must have an effective board of directors that promotes and protects the company’s best interests in the long term. It is the responsibility of both shareholders and the board of directors to ensure that the right conditions and good working methods are in place for effective board work.

For several years, AP2 has emphasised the importance of increasing the number of women on the boards of listed companies. The Fund has particular focus on this when it is involved in the nomination process and this is clearly stated in the Fund’s Voting Guidelines. From a company-specific perspective, a low proportion of women on both the board and executive management raises concerns that the companies are inadequately utilising the pool of expertise that exists both internally and in the industry and environment in which they operate, to the detriment of future value growth.

AP2 votes:

• In general, no to the proposed chair of the board if he/she is also, or has previously been, the CEO of the company.
• No, to the election of members to boards that do not have board members of both genders.
• No, to the re-election of the entire nomination committee, where this is made up of board members, unless sufficient progress has been made in terms of diversity.
• No, to the election of a board member who is deemed to have an excessive number of other assignments, in view of the complexity of the activities of the other companies and the time required of the member.
• No, to the re-election of board members who did not have at least 75 per cent attendance of the previous year’s board meetings without giving a special reason.

Incentive programme

The primary purpose of long-term share-related incentive programmes must be to ensure that the financial interests of senior executives correspond to those of shareholders on a sound basis. The programme must be part of a communicated long-term remuneration strategy and have a clear link between performance and outcome. It is the responsibility of the board of directors to explain the connection between the objectives set and the design of the programme, and to subsequently evaluate the extent to which the programme has contributed to achieving these objectives.

AP2 votes for incentive programmes:

• No, if there is no clear link between performance requirements and remuneration.
• No, if the total cost of the programme is deemed to be unreasonable.
• No, to programmes with remuneration-free allocation of shares and options.
• No, if satisfactory follow-up of the current programme has not been presented.
• No, if the programmes supports an unreasonably large payment on ‘change of control’.
• As from 2024, intends to vote against proposals for incentive programmes where relevant sustainability issues for the business are not reflected in the programmes.

Nomination committees

AP2 is keen to be represented on the nomination committees of companies as this provides a key opportunity to exercise influence as an owner. The Fund’s policy is to accept any request for nomination committee duties.

Board diversity

For several years, AP2 has emphasised the importance of increasing the number of women on the boards of listed companies. The Fund has particular focus on this when it is involved in the nomination process and this is clearly stated in the Fund’s Voting Guidelines. From a company-specific perspective, a low proportion of women on both the board and executive management raises concerns that the companies are inadequately utilising the pool of expertise that exists both internally and in the industry and environment in which they operate, to the detriment of future value growth.

The Fund follows up the work conducted in this area by the board of each company whose general meeting the Fund intends to attend. At general meetings, the Fund votes against proposed boards with no female members.

Collaboration – dialogues

AP2 conducts dialogues with other asset owners, including through the Council on Ethics and ACGA. AP2 also conducts dialogue work directly with selected portfolio companies.

The Fund, together with other international investors, engaged in a number of owner dialogues with companies during the year. In addition to the collaboration between the AP Funds on the Council of Ethics, AP2 is also a member of and supports various initiatives in Sweden and internationally in the areas of the environment, ethics, social issues and corporate governance.

The Fund also collaborates with other investors to influence new legislation, particularly within corporate governance. These collaborative efforts are becoming increasingly important in influencing and bringing about change, and thereby enhancing long-term shareholder value.

Transparency

The Fund reports its corporate governance work in the Fund’s annual report and sustainability reports, and on the Fund’s external website. The Fund also presents its position transparently in the Corporate Governance Policy and Voting Guidelines, which clearly state the Fund’s position and how the Fund intends to vote on various issues.

Policy

Guidelines

Links

See how AP2 voted at general meetings
Summary of half-yearly voting