Governance of sustainability

Organisation and allocation of responsibilities

Principal

AP2 operates on behalf of the Swedish public under mandate from the Swedish Parliament and Government. The Fund is governed by The AP Fund’s Act. The Government appoints members of the Board and presents an annual report to Parliament on the Fund’s operations, including an evaluation of its sustainability work.

Board

In accordance with legislation, the Board establishes the Fund’s objectives and the overall framework for its operations in an annual business plan. This includes, among other things, investment beliefs, the strategic portfolio and the Sustainability Policy. The Sustainability Policy describes the Fund’s approach to sustainability and defines governance, targets, commitments, integration and transparency for each focus area. The business plan is followed up by the Board and Executive Management and is reported in the Annual Report and the Sustainability Report.

The Board receives written updates on the Fund’s sustainability work ahead of each Board meeting and has the opportunity for in-depth discussion under a standing agenda item on sustainability at every ordinary Board meeting. In addition, separate in-depth briefings are held when required.

Executive management

Responsibility for AP2’s sustainability work rests with the CEO and the Executive Management team, together with the Head of Sustainability. They are responsible for implementing and monitoring the Sustainability Policy. Sustainability issues are a standing item at regular Executive Management meetings.

All employees have a responsibility to consider sustainability aspects within the scope of their roles, while the Chief Investment Officer is responsible for integrating sustainability risks and opportunities into portfolio management. The Sustainability function coordinates the sustainability work, supports the investment organisation and reports to both Executive Management and the Board.

Day-to-day work is carried out across the Fund’s various departments in collaboration with the sustainability team, which is also responsible for monitoring external developments, analysis, engagement, external collaborations, and follow-up and reporting.

AP2 conducts regular internal training on sustainability and its focus areas. This ensures that all employees develop the knowledge required to integrate sustainability into their daily work.

Guiding frameworks and policies

AP2’s sustainability work is based on Swedish and international laws, frameworks and conventions. These include the OECD Guidelines for Multinational Enterprises and Corporate Governance, the UN Global Compact, the UN Guiding Principles on Business and Human Rights, the Swedish Companies Act and the Swedish Corporate Governance Code.

The Fund also follows corporate governance standards such as the ICGN Global Stewardship Principles and the UK Stewardship Code. AP2 supports and implements the UN-supported Principles for Responsible Investment (PRI). The Fund also follows PRI’s guidelines for responsible investment in agriculture, which were developed in 2011 by AP2 together with a group of international investors.

AP2’s policy framework

AP2 has several policies and guidelines that form the basis of its sustainability work, with the Sustainability Policy as the starting point.

AP2’s Sustainability Policy is based on the values and positions of the Swedish Government as well as the common values of the AP funds. The policy forms part of the Fund’s business plan, which is approved annually by the Board. It establishes the overall framework for the Fund’s sustainability work and is implemented through the sustainability strategy and action plans, which include targets for each focus area.

In addition to the overarching Sustainability Policy, AP2 has a Human Rights Policy, a Deforestation Policy and an Stewardship Policy, as well as several internal policies and guidelines.

AP2’s sustainability methodology

AP2’s sustainability work follows a methodology consisting of six components. These form the basis for the strategies describing how the Fund works within each focus area. The methodology answers the question of how AP2 operates through responsible investment and responsible ownership:

Sustainability risks

The most significant risks in AP2’s operations are divided into three categories: financial risks, operational risks and impact risks. Sustainability risks may affect all these areas.

Impact risk refers to the risk that an investment may cause harm to people or the environment. Examples of impact risks relating to people include human rights violations, corruption and bribery. Environmental impact risks include illegal deforestation, greenhouse gas emissions and the dumping of hazardous waste.

By identifying impact risks, the Fund can manage them more effectively. This involves avoiding investments associated with risks that the Fund does not wish to hold in its portfolio, and, through engagement, working to reduce risks that are already present.