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Swedish AP funds exclude 10 companies due to ethical breaches

Sweden’s first four buffer funds, with combined assets of SEK 690.6 billion (US$83 billion) have demonstrated a lack of tolerance for companies that continue to breach ethical guidelines despite the funds’ governance efforts to bring about change, excluding 10 companies from their investment universe.

The Ethical Council, which counts AP1-4 as its members, is in ongoing dialogue with a further 13 companies which have
been accused of violating international conventions and principles.

The companies that were excluded include Singapore Technologies Engineering, one of the few listed companies in the world whose manufacturing of anti-personal land mines is documented, and nine other companies on the grounds of reported involvement in development, manufacturing or marketing of cluster bombs and/or their special components.

According to the council’s 2008 annual report, such practices are in violation of the Convention on Cluster Munitions, which has been signed by Sweden.

The council’s dialogue approach to governance did succeed, however, in bringing about change in three companies, which were all removed from the council’s focus list at the end of 2008.

The council said BHP Biliton was removed after vowing to once again permit its new employees to sign collective agreements in accordance with new Australian legislation, while France-based Sodexo was removed after contact with the council prompted the company to immediately formulate and implement a human rights policy following an incident at an immigration removal centre in the UK.

Chevron Corporation’s Nigerian arm was also removed following successful dialogue around improvements on human rights.

L-3 Communications was removed from the focus list due to exclusion from the investment universe after the company was reported for marketing several special components in violation of the Convention on Cluster Munitions.

The Ethical Council was set up in 2006, and at the beginning of 2007, following a screening of the funds’ combined holdings; the council selected 12 companies to work with actively.

“Dialogue is the basis for our work, and we prefer not to exclude a company before we have done everything in our power to bring about a change,” said Carl Rosen, outgoing chairman of the council who has been replaced in 2009 by Christina Kusoffsky Hilles. “But sometimes we are forced to recommend exclusion.”

The companies that have been excluded by all funds are: Alliant Techsystems Inc, GenCorp, General Dynamics Corp, Hanwha Corp, L-3 Communications Hlds, Lockheed Martin Corp, Poongsan Cor (and Poongsan Holdings Corp), Raytheon Company, Singapore Technologies Engineering and Textron Inc.

Those with whom dialogue continues include: AES Corporation, Bridgestone Corporation, Chevron Corporation, Duke Energy Corporation, Freeport-McMoran Copper & Gold Inc, Grupo Ferrovial S.A, PetroChina Company Limited, Rio Tinto Limited, Thales SA, Toyota Motor Corporation, Vedanta Resources Plc, Wal-Mart Stores Inc and
Yahoo! Inc.

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