The Council on Ethics was founded in 2007 on the initiative of the First, Second, Third and Fourth Swedish National Pension Funds (AP Funds). The role of the Council is to use dialogue aimed at encouraging non-Swedish listed companies to make improvements in sustainability. The mandate of the four AP Funds is to manage the state income pension system’s buffer capital. Since their formation in 2001, the AP Funds have contributed positively to the pension system and managed the buffer capital with good value growth.
The AP Funds contribute to a stronger Swedish public pension system by managing the system’s buffer capital – from here, money is taken to cover deficits in pension payments. Deficiencies can arise if there is, for example, demographic generational differences or weak socio-economic development. The pension system
is planned to handle such occurrences – that’s why the systems buffer capital exists. Through long-term asset management, the AP Funds should ensure positive value growth of the buffer capital, which contributes to a stable pension system and secure pension payments over time – for this and the next generation.
Mandate from the Swedish parliament
The AP Funds’ mandate from the Swedish Parliament (Riksdagen) is to create high returns at low risk for current and future pensioners, which at the same time will contribute to the income pension system’s stability. On 1 January 2019, the rules in the National Pension Insurance Funds (AP Funds) Act changed. For example, a new goal has been introduced that the AP Funds must contribute to sustainable development by managing their assets in an exemplary way. This requires responsible investment and responsible ownership. This goal has to be achieved without the AP Funds compromising the objective of attaining a high return in the long run.
The pension system’s buffer capital has over time been well managed by the AP Funds. The capital has had good value growth and today accounts for more than 15 per cent of the pension system’s assets. Four AP Funds with the same assignment, to manage part of the buffer capital, spreads among other things the risks in the
pension system (don’t put all eggs in the same basket) and spurs the AP Funds to positive competition and development. The latter has contributed to the AP Funds’ asset management and ownership being viewed to be at the forefront internationally. The AP Funds’ management is evaluated annually, by external auditors and an special appointed auditor by the Government. A comprehensive evaluation report is published and presented to the Swedish parliament (Riksdagen) every spring.
The Council on Ethics of the AP Funds
The Council strives to influence companies around the world to pursue corporate social responsibility to ethical, environmental and sustainability issues that are of major importance for people and communities, and for the companies’ own value creation. Through dialogues and talks, the Council becomes engaged both preventively and in connection with incidents. The fact that the companies’ activities are conducted sustainably benefits both the companies’ long-term earning capacity and the longterm financial return. Sustainable companies contribute over time to good investments, which benefit the pension system and pensioners.
The income retirement scheme is a distribution system where the year’s paid-in pension contributions from the gainfully employed are used to pay out pensions to the same year’s pensioners. Those who work and pay taxes make an automatic provision of 18.5 per cent in pension contribution. 16 per cent goes to the income pension system and 2.5 per cent to the premium pension.
The pension system
Today’s pension system has worked as intended since the start in 2001. Deficits occur in times of large retirement benefits (as has been the case since 2009) and forecasts show deficits until 2040. Low unemployment, high nativity, labor migration and Sweden’s socio-economic development are some important factors for the well-being of pensions to develop well over time. Read more about the system Pension Authority’s website www.pensionsmyndigheten.se.