Sustainable investment processes : A multiple case study of the Swedish national pension funds

Today, the Swedish national pension funds (i.e. the AP-funds) are managing about 21% of the total pension savings in Sweden. As this accounts for approximately 1 300 billion SEK, the importance of a correct and thorough understanding of these funds is understandable; especially how they are incorporating sustainable investments into their investment processes. There are a number of researchers exploring the AP-funds’ use of different screening methods and engagement policies. However, none of these have made an attempt to explain how these different methods, and other parameters and aspects of sustainability, is incorporated into the investment processes. In order to fully grasp the issue at hand, one has to know that these funds indirectly own large fossil fuel reserves, 80% of which cannot be used unless we aim to stay below a global warming of 2ºC, and even less if we are to stay below 1.5 ºC. These reserves mainly stem from the AP-funds’ shares in 115 of the 200 companies on the CT200 list. However, not only are these companies contributing to the issue; these funds also have investments in other companies which could be seen as harmful to biodiversity, such as palm oil production for example. Although previous researchers have studied the area of which different screening methods and engagement is used in the national pension funds, many leave out how the different aspects and parameters of sustainability are incorporated into the investment process. This has created somewhat of a blind spot when it comes to the AP-funds’ sustainable investments. Moreover, some researchers are also discussing the possible trade-offs and issues involved in sustainable investments. However, this has not been specifically tied to the AP-funds, leaving room for further research in this area. Thus, the research questions in this study are: How is sustainability parameters incorporated into the investment process in the Swedish national pension funds today? Are there any issues and trade-offs involved in this process? In order to be able to find an answer to these research questions, we have executed a qualitative multiple case study, using semi-structured interviews. In total, we received six interviews from employees in different areas within three out of the four funds. Additionally, the empirical findings received during the interviews were further strengthened by the use of triangulation with information found in the funds’ annual statements and official reports. The findings of this were that although the AP-funds do include different parameters and aspects of sustainability into their investment process, these are mainly concerned with the financial stability of the companies. Furthermore, the funds also showed that their exclusions of companies were mainly based on conventional crimes against human rights. The main underlying reason for including these parameters into the investment process was a concern about the different risks the funds were exposed to. Lastly, the issues that did arise in the investment process were mainly concerned with the measurements of sustainable information and in the cases of a trade-off between sustainability and returns; the funds more often than not chose the returns due to the regulation