Responsible investors contribute to positive change

The Fourth National Pension Insurance Fund (AP4) is one of five buffer funds in the national pension system. The Fund’s brief is to manage Fund capital for best possible return over time and thus support the stability of the pension system.

The Fund’s corporate governance work:

• originates in the Fund’s duty to protect and grow the capital invested so as to contribute to a healthy return on investments,
• safeguards the best interests of shareholders and individual companies,
• takes into account the unique circumstances and needs of each individual company,
• exercises the rights and obligations of ownership in a responsible and sustainable manner,
• takes into account environmental and ethical issues without compromising its goal of maximising returns, and
• promotes the development of good practice in securities markets.

The Fund believes that good ethics and attention to environmental concerns are prerequisites for companies achieving sustainably healthy returns.

The Fund believes that active, responsible owners are needed to drive change for the better and induce companies to become more responsible. This applies to both Swedish and foreign companies.

If the Fund disposes of shares in a company, the problems in question do not disappear and the unsatisfactory state of affairs persists. Disposal of the company is the absolute last resort when achieving change is not possible in any other way.

In other words, the Fund believes that it is more responsible to remain as a shareholder and try to influence the company, making demands and driving change for the better. When the Fund pursues such demanding interaction with the company’s management and board, more investors hold the company to account, make follow ups, and act to ensure that the unsatisfactory state of affairs is remedied. The Fund makes a positive difference by getting involved as a responsible, active owner.

The Fund supports the Principles for Responsible Investment (PRI), a United Nations initiative for responsible investment. The purpose of the PRI is to bolster companies’ and investors’ responsible behaviour in terms of ethical and environmental issues.

Fund's ownership policy an important tool

Each year, AP4's Board of Directors approves the Fund's ownership policy, which contains guidelines for how the Fund shall apply its voting rights and take policy positions in individual companies, Swedish as well as foreign. The ownership policy shall safeguard the best interests of shareholders and individual companies. It shall take into account the unique circumstances and needs of each company and strive to contribute in the long run to maximising AP4's long-term return.

Remuneration to be reasonable, defensible and definable

Remuneration matters have always been a matter of priority in the Fund's corporate governance work, and have gained importance both as a matter of corporate governance in general, and in light of the public debate in recent years about remuneration at listed companies.

In the ownership policy for the Fund adopted by the Board of the Fund in 2009, the Board clarified and tightened up the requirements taking into consideration the Government’s Guidelines for Terms of Employment for Senior Executives in state-owned Companies regarding remuneration programmes featuring incentive-based pay. As a national pension fund, it is crucial that the Fund's actions in these matters instil confidence.

Fund's demands lead to improvement

Therefore, the Fund's evaluation of proposed remuneration programmes has consequently been systematised and tightened up further. Each remuneration programme on which the Fund votes is evaluated in detail with reference to the requirements of the Fund's ownership policy. The dialogues of the Fund and other institutions with companies regarding remuneration matters have led to an improvement in submitted proposals.

The Fund's view is that incentive-based pay programmes aimed at senior executives are to be in harmony with the long-term interests of shareholders. They are to reward positive, long-term achievements, but also work in the opposite direction. If the desired level of achievement has not been reached, total remuneration shall be lower. Incentive-based remuneration shall therefore require clear-cut and measurable achievement. The remuneration shall also have a ceiling.

The Fund therefore puts stringent demands on the structure, evaluation, and transparency of the programmes. They should be “definable and defensible”. In the ownership policy, the Board of the Fund decides in detail what should be paid special attention for the Fund to be able to vote in favour of proposals at an AGM.

Environment and ethics

The Fund's work on environmental and ethical issues is conducted in the asset management in the different asset classes and by the Fund's corporate governance unit. Please read more under the heading >>ESG in asset management.

In the field of the environment and ethics, the Fund has chosen to work on many issues through the Ethical Council, a collaboration between AP1, AP2, AP3, and AP4.
>>read more about Ethical Council

For further information about the Fund's work on corporate governance in 2011, please read >>Corporate Governance Report 2011 and >>AP4 Ownership Policy 2011