The AP funds’ ethical council, which coordinates the ethics of the four Swedish buffer funds, has so far engaged with 14 companies to improve their ethical standards. But its first annual report shows that the council only managed to change the ethics of two of the firms it engaged with.

The results fall short of its goal to alter the ethics of a least three to five companies. Its chairman and head of corporate governance at AP 2, Carl Rosén, admits he is not satisfied with the results.

“I don’t think one will ever be satisfied – there is of course always more that we could have achieved. But we are happy that we’ve got the process started,” says Mr Rosén, who would not comment on whether the aim of changing up to five firms, revealed last year by former chairman and head of corporate governance at AP 1 Nadine Viel Lamare, was still important.

Mr Rosén does not rule out adding more firms to its blacklist this year, but says it depends on the progress of the cases selected so far.

“In some cases we’re optimistic, in other cases less so. But the important thing is to have a long-term perspective, patience and the resources to follow through.”

The ethical council, which was formed last year to make better use of the funds’ resources, is currently engaged with 13 firms. The US energy company Halliburton, accused of bribery and business ethic breaches, was blacklisted earlier this year. Chevron, another US energy firm, which has shown signs of improvement in dealing with human rights breaches in Nigeria, remains on the council’s blacklist. The remaining 12 firms show little signs of improvement.

But Mr Rosén is optimistic that teaming up with the other AP funds has made it easier for foreign firms and other institutional investors to know who to speak to. It has also raised the funds’ profile abroad.

“We not only disclose who we engage with, but we’re also creating awareness of the fact that we are voting and putting forward resolutions at board meetings,” says Mr Rosén.

GES Investment Services, the AP funds’ consultant on ethical and environmental analysis, screens the 3,500 companies the buffer funds invest in and comes up with a shortlist of 20 to 25 companies for possible engagement. The ethical council then selects about 10 companies to engage with, but the selected firms are not necessarily the worst offenders.

“We look to have good diversification among the cases we engage with and spread those cases among different sectors as well as different kinds of infringements,” explains Mr Rosén. All selected firms violate international conventions.

Unsurprisingly, both Yahoo and Wal-Mart, which the AP funds have previously spoken out against, are on the list. The list is dominated by energy and commodity firms, such as the Chinese PetroChina and the US Freeport-McMoran Copper and Gold, but also includes consumer and IT companies.

If a dialogue does not lead to any results, the ethical council recommends that the AP funds stop investing in those firms. However, there are no specific criteria for what will prompt exclusion.

But the AP funds own structure for ethical and environmental analysis might not be enough. The funds have been criticised for their investments in land mines, nuclear weapons and for not having enough green investments. A committee, set up by the ministry of finance, will propose changes to the AP funds ethical guidelines by November this year. The structure of the Norwegian fund, where the ministry of finance decides which firms to exclude, has been touted as a possible blueprint.

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