Sweden is inviting international asset managers to help allocate 1 trillion kronor ($90 billion) of pension savings, but says it won’t accept applications from firms that don’t incorporate ESG into their strategies.
(Bloomberg) — Sweden is inviting international asset managers to help allocate 1 trillion kronor ($90 billion) of pension savings, but says it won’t accept applications from firms that don’t incorporate ESG into their strategies.
The new framework will replace a system tainted by an embezzlement scandal that infuriated Swedish taxpayers and triggered calls for a more robust setup. The upshot is that only investment firms that integrate environmental, social and governance goals into their work need apply, according to the Office of the Swedish Fund Selection Agency, which is overseeing the process.
“Unlike in the current system, there will be a requirement that the manager systematically integrates sustainability aspects into its operations,” Erik Fransson, executive director of the office, said in an interview.
The move underscores the wildly divergent approaches different jurisdictions are taking as they figure out how big a role ESG should play in mainstream investing. In Europe, ESG is currently being hardwired into financial regulations. In the US, lawmakers just voted to block the pension industry from taking ESG risks into account.
The Retirement Fund Rule on ESG Biden Vows to Save: QuickTake
Sweden is now enshrining its ESG requirements for pension managers into law, under which investment firms must show an “exemplary approach to sustainability through responsible investment and responsible ownership.”
International investment firms interested in applying for the pool of pension savings, which represents just over 10% of Sweden’s total public retirement assets, need to be able to document their ESG claims. That includes showing they have processes in place to prevent portfolio funds being linked to violations of the United Nations’ Global Compact, the OECD’s guidelines for multinational corporations, or the UN’s guiding principles for human rights, according to a draft provided by the Office of the Swedish Fund Selection Agency.
And firms will only be allowed to offer investment products that are registered as ESG fund classes under Europe’s Sustainable Finance Disclosure Regulation, namely Articles 8 and 9, the draft shows. The first selection process is set to take place in the second quarter, and Sweden expects to choose a total of 150 funds.
The new framework will replace a system that had been dragged down by widespread fraud, which ended up costing taxpayers at least 2.8 billion kronor. A formal investigation was launched in 2015 and verdicts handed out in 2020 and 2021, resulting in fines and prison sentences for six of the people involved in the investment scam.
Fransson said that fund managers who live up to Sweden’s ESG expectations within the new framework will face reviews “on an ongoing basis” to ensure they continue to meet the “requirements that will appear in the fund agreement.” These include a rule stipulating that firms only use active-management strategies, and not rely on indexes.
“If the requirements are not met, it is a breach of contract which can lead to the fund not being allowed to remain on the fund market,” Fransson said.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.