Responsible Investment Report 2014

Responsible Investment Report 2014 ABOUT THE CHURCH OF SWEDEN promoting sustainability in various ways The Church of Sweden has extensive experience...
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Responsible Investment Report 2014

ABOUT THE CHURCH OF SWEDEN promoting sustainability in various ways The Church of Sweden has extensive experience in supporting and strengthening society through its contributions towards sustainable development. Within the area of international development, we work with partners in some 40 countries to fight hunger and disease, strengthen people’s opportunities to defend their rights and create prerequisites for peace and sustainable development. In addition, we have been involved in microfinance and fair trade for decades in an effort to contribute to economic development and dignified working conditions in countries where this is far from the norm. The Church

of Sweden also owns forests and land. Today, all forest is certified in accordance with FSC (Forest Stewardship Council).   Asset management at the national level of the Church of Sweden supports these same goals. We aim to ­promote sustainable production and consumption, by focusing on the important roles of businesses and investors. These efforts are described in this report. read more about how we work to further sustainable development:

an overview of our religious community The Church of Sweden is Sweden’s largest religious community and membership organisation of which approximately two-thirds of the citizens of Sweden are members. The national level within the Church of Sweden, which this report regards, is responsible for the Church’s affairs and provides support to parishes and dioceses.

Parishes (local level) 1 400 Dioceses (regional level) 13

The national level Responsible for the Church of Sweden’s joint affairs.

The General Synod

The Church of Sweden’s supreme governing body, which is elected by the members of the Church.

The Central Board

Leads and coordinates assignments at the national level. The Central Board has general strategic responsibility for asset management.

The Central Church Office in Uppsala

Executes decisions related to the assignment of the national level within the Church.

The Asset Management Council with operational responsibility for asset management.

Department of Economy and Finance Executes decisions made by the Asset Management Council.



























2014 IN BRIEF continued good performance - on two fronts During 2014, asset management generated a net-profit of SEK 885 million corresponding to a return of 16 % which is clearly better than our reference portfolio (12.5 %). The greater part of the companies that we have invested in, and for which we have sustainability analyses from MSCI ESG Research, received high scores. Many of these companies contribute, through their business activities, to solutions for major societal issues by reducing environmental impact and increasing access to important technology, healthcare and sustainable energy systems.

climate-smart asset management The national level of the Church of Sweden has not invested in coal and oil companies since 2009. In 2014, we divested the few (three) companies we had who extracted natural gas. However, we don’t stop at just divesting our holdings in companies that do not meet our standards. The asset managers we select actively choose companies that reduce their carbon footprint and develop climate-smart products and services.

proactive engagement to spur change We engage with companies that need to improve their sustainability programmes. To facilitate this, we co-operate with other investors to increase our leverage. Companies that we engage with often act upon our recommendations, and during 2014 we were successful in most of our efforts. We also participated in a major engagement initiative focusing on how banks approach climate change. In another project, we raise the need for sustainable tax practices and encourage companies to increase transparency.

increased investment in our ethos funds At year-end, there was approximately SEK 6 billion invested in the Ethos funds (2013: SEK 5.1 billion). The funds have been created together with SEB (a Swedish equity fund and a Swedish fixed-income fund) and RobecoSAM (a global equity fund). They are based upon the Church of Sweden’s financial policy and its sustainability requirements and have low fees. In addition to the national level and the Church’s pension fund, they are offered to parishes and dioceses.


2014 in brief

MESSAGE FROM THE CHAIR The Church provides its asset managers with long-term mandates in which sustainability issues shall be an integral part of their analyses as well as the decisions that they make regarding what to invest in. For this reason, asset managers search for companies that use their resources efficiently and in an innovative manner to meet the challenges that the world is facing. We explicitly require that asset managers extend their investment perspectives beyond quarterly performance, and we evaluate their work on a continuous basis. We have chosen asset managers who have a high level of competence in regard to both financial and sustainability issues. This report clearly illustrates that it is beneficial to unite the two. For the third year in a row, we have outperformed the return of our reference portfolio; this year by 3.5 percentage points, and the performance of the asset managers was a significant contributing factor to this positive outcome. Strong societies need strong companies who do not just consider short-term profits but who also create value in for the long term and act to protect human and natural resources. The opposite is of course also true: companies need societies that function well. Research1 provides evidence that companies who incorporate sustainability ­issues into their activities are more profitable than those who do not. In our role as an asset owner, and taking into consideration the values that provide a foundation for our beliefs and work, we wish to support and promote the positive interaction between society and the business ­sector. photo: fredrik sandin carlson

In line with a decision taken by the General Synod, the Central Board of the Church of Sweden shall be responsible for managing the considerable assets of the Church in a manner that allows for the best possible total return being achieved in the long term. In addition, financial assets shall be managed in an ethically defensible manner in accordance with the fundamental values of the Church. This means that our investments are guided by the principle of human dignity and the concept of stewardship important principles that emphasise the equal value of all human beings and our responsibility to properly manage the resources of this planet that we have been given the privilege to live upon for a brief period of time. This report illustrates how the Central Board Asset Management Council has interpreted and applied the mandate given to us by the Central Board. The total return for 2014 of 16% exceeds the return requirement that has been established by a wide margin. Changes in financial markets and favourable shifts in the currency exchange rates during 2014 have assisted us in achieving this positive return. However, performance in the long term is much more important to us and to those who have entrusted us with our mission than the return in an individual year. Seen out of a ten-year perspective, returns have been 96% in nominal terms, and adjusted for inflation 83%. This corresponds to an annual return of 6.2% in real terms on average. We are very pleased to be able to contribute to the Church of Sweden with such positive asset management returns. The assets we manage act as an important buffer for our religious community in light of the challenges we face. The performance of the investments in the funds that are offered to parishes and dioceses - the three Ethos funds, with their good returns - ought to attract others to follow the example; not least since the management of the funds also corresponds to the values of our Church.

bertil persson

chair central board asset management council

In 2012, Deutsche Bank compiled approximately 60 academic studies in the area. In nine cases out of ten, the conclusion was that companies who systematically incorporate environmental, social and corporate governance related issues into their operations performed better than those who do not. Read more: DB Climate Change Advisors, 2012, Sustainable Investing: Establishing Long-Term Value and Performance.


message from the chair


photo: cesar manso


managing assets against the stream

< By the year 2020, 80% of the world’s population is expected to live in regions in which solar energy will be able to compete with other energy sources. This is already the case in as many as 80 countries.

MANAGING ASSETS AGAINST THE STREAM How and where we invest our money is of importance. Everyone can make a difference regardless of whether they are saving on a personal level, are a larger pension fund manager or a religious community such as the Church of Sweden. Assets at the national level totalled SEK 6.4 billion at the end of 2014. These assets are managed actively with a focus on sustainability. The population of the world, as well as the middle-class, are growing. More and more people have access to a better standard of living and this is very encouraging. At the same time, the need to live and consume in a more sustainable manner is increasing. We only have one Earth, and nature has its limits. We are already exceeding these limits today. If everyone in the world lived as we do ­today in Sweden, we would need almost four planets to meet the need of natural resources2. The business and financial sectors play important roles in resolving this issue. Politicians, organisations and individuals have to act responsibly. But without bringing to bear the innovative power of the business sector and the workings of the financial sector, we will not be able to manage the challenges that the world is facing. And these challenges are great.

Between now and 2030, the demand for food is expected to increase by 35% and the demand for energy by 50%. However, the effects of climate change can already be seen on all continents of the world. In addition to this, the demand for water is expected to exceed supply by 40% in 2030. During the course of a quarter century the world has succeeded in cutting extreme poverty in half, and this is nothing less than a major victory. At the same time, more needs to be done since every eighth person is still hungry and the differences in incomes are ­increasing.3

an investor with a clear message In this context, the need of sustainable and responsible investment becomes clear. The Church of Sweden endeavours to invest responsibly and has been commit-


 ccording to WWF’s estimate, Sweden’s carbon-footprint is the tenth largest in the world. A


Information from National Intelligence Council, 2012, Global Trends 2030: Alternative Worlds och IMF/Christine Lagarde, Economic Inclusion and Financial Integrity, May 27, 2014.

managing assets against the stream


ted to doing so for many years. We strive to develop this work on a continuous basis. Today, the Church’s asset management is based upon the financial policy adopted by the Central Board in 2010. This policy rests upon two basic principles: the principle of human dignity and the concept of stewardship. These basic principles are also reflected in international conventions regarding human rights and the environment. Based upon these two principles, asset management complements other efforts towards sustainable development within the Church of Sweden, both domestically, as well as abroad. During the past few years, all dioceses have adopted similar ­policies. Our financial policy clearly states that we shall be an active asset owner who takes a long-term approach when managing our assets. We attempt to impact society in positive ways through:

the companies we invest in Our focus lies on well-managed companies that integrate sustainability into their business operations. At the same time, we do not invest in companies within controversial sectors that are considered to be problematic in light of the fundamental values of our Church. This regards for example, companies who extract fossil energy sources or manufacture weapons or tobacco.

the asset managers we select We invest our assets in funds whose managers have a high level of expertise in integrating environmental, societal and corporate governance4 factors into their invest-

ment decisions. We also contribute to new financial products being released onto the market by creating our own funds (such as SEB’s Ethos funds) and also as seed investors for new sustainability-oriented funds (latest SEB’s micro-finance fund which is the first of its kind in Sweden5).

by being active owners We utilise our opportunities as an asset owner to influence individual companies and sectors as well as the financial industry in general. We make our views known and choose partners who, like ourselves, aim to be responsible investors with a long-term perspective.

FACTS ON ASSETS Assets at the national level of the Church of Sweden, which are maintained as a buffer against future needs, totalled approximately SEK 6.4 billion at year’s end 2014. The internal regulations of the Church of Sweden (the Church Order) state that asset management must take a long-term perspective. The Church Board has decided on an annual return requirement of 3% above inflation over a rolling ten-year period. The returns make it possible to take ne­ cessary measures and provide support at the parish and dioceses levels when needed. Since 2007, the General Synod (the supreme governing body of the Church of Sweden) has decided to withdraw funds from assets at the national level. This has resulted to total withdrawals of SEK 573 million from assets under management.

Corporate governance regards how a company shall be governed, regulated and controlled to satisfy owners and stakeholders. The scope of the Swedish Code of Corporate Governance also includes board responsibilities and roles as well as auditing and reporting.




managing assets against the stream

SOLUTIONS AND LONG-TERM VALUE CREATION IN FOCUS The Church of Sweden’s financial policy stresses that asset managers must actively seek out companies who contribute to sustainable development through their conduct, goods or services. This regards companies that work systematically and goal-oriented with sustainability issues. It may also regard companies that find new business opportunities by developing products and services that are advancing solutions to some of the most pressing, current, societal needs. Here are some examples from the equity portfolio for 2014:

health and effective healthcare Our holdings in funds include several companies who work proactively with disease prevention and also contribute to the effective treatment of rapidly spreading diseases. The Danish Novo Nordisk, a leader in the treatment of diabetes, is an example of such a company. Other companies, such as Varian Medical Systems and Elekta, make important contributions to the efficient and effective care of cancer patients. The Manila Water Company is contributing to disease prevention in the Philippines and Vietnam. Over the last few years, they have expanded access to clean water and proper sanitation facilities in these countries. Still, more than 4 000 children under the age of five die each year in the world due to lack of clean water and poor hygiene.

companies that contribute to ­development We live in a world in which resources are inequitably distributed. Even though a greater number of people over the last few decades have been able to enjoy a better

standard of living, the gap between the rich and the poor is increasing. A number of the companies that the asset managers have chosen devote their efforts to where needs are greatest. Bank Rakyat, an Indonesian bank in which the majority of loans are granted to micro-companies as well as small and middle-sized companies, is an example of such a company. These efforts are important to developing a local business sector and creating economic development. The British pharmaceutical company GlaxoSmithKline (GSK) has an elaborate strategy for countries where the need of medicines and pharmaceuticals is great. The company receives the highest score in the Access to Medicine ranking which is conducted by the independent foundation Access to Medicine Foundation. This ranking explains how GSK has increasingly focused its efforts on working to reduce and counteract diseases such as HIV/aids, malaria and tuberculosis. In recent years, GSK has adapted its prices to poorer countries to make its products more affordable. The company has also established a goal to, through joint action, contribute to an additional 20 million people gaining increased access to healthcare in the least developed countries of the world by 2020.

products and services that save energy Climate change is a reality and emissions need to be rapidly reduced. We invest in several companies that are leaders in saving energy. Buildings account for 40% of the world’s energy use. During 2013, the Irish company Kingspan, who offer solutions for thermal insulation, are estimated to have reduced customers’ emissions of greenhouse gases by 25 million tons. This corresponds

managing assets against the stream


to three times as much as the entire city of London’s yearly emissions arising out of the consumption of electricity. Another example is Atlas Copco whose electrical vehicles are 40 to 70% more energy effective than corresponding vehicles run on diesel. We also invest in several e-commerce companies (Ocado and others) whose business models have led to more efficient logistics and lower emissions in comparison to traditional commerce.

large companies with clear goals

photo: justin sullivan

Some of the companies that we invest in have a significant impact on the environment and the daily lives of people

due to the products that they offer and their sheer size. In these cases, asset managers choose companies that reduce their negative impact and contribute to important sustainability initiatives. In 2010, Unilever committed to cutting its carbon footprint in half by 2020 while carrying out its strategic plan to double its sales. H&M, whose garments are manufactured in low-cost countries where the workers often earn very low minimum wages, have committed to ensuring that workers at their strategic suppliers will receive fair, living wages by 2018. Approximately 850 000 workers, most of whom are women, will be positively impacted by this ­commitment.

The American company The Fresh Market and the Taiwanese company Standard Foods are two companies providing healthier foods. According to WHO, the amount of overweight people in the world has doubled during the last thirty years.


managing assets against the stream

All of the companies that we invest in face challenges and operational areas they need to make improvements upon. Read more on page 17 about the engagement work we carry-out to ensure that these companies take steps to address these challenges.

businesses we avoid

read more about our financial policy and how we work on our website:

photo: robert f. bukaty

We refrain from investing in businesses that we do not want to be associated with. Due to this, and due to the fact that we are committed to investing in companies that contribute positively to society, we do not invest in companies that produce weapons, tobacco or pornogra-

phy. We also have a very restrictive investment policy in regard to companies that are involved in alcohol and gaming. For these types of companies, we set strict, responsible marketing requirements. We also refrain from investing in companies who extract fossil fuel energy sources.

In 2013, slightly more than one-fifth of the world’s electricity was produced using renewable energy sources.

managing assets against the stream



performance 2014 photo: lya cattel/istockphoto

< We invest in several companies, such as the French company Valeo and the British company TT Electronics, who manufacture components and provide solutions for more environmentally-friendly vehicles.

PERFORMANCE 2014 Performance during 2014 was positive despite vigorous fluctuations on the world’s stock exchanges. Net-profit for the year was SEK 885 million corresponding to a return of 16.0% as compared to our reference portfolio at 12.5%. Assets under management on the national level amounted to over SEK 6.4 billion at year’s end. 2014 was also the year when investors came under pressure to act on climate change and the Church of Sweden, who set up a climate strategy in 2009, urged more players to invest in green solutions. financial performance The Central Board of the Church of Sweden, through its financial policy, has laid the foundation for asset management whose focus shall be long-term performance. This is reflected, for example, in the long-term return target which states that we shall achieve a 3% annual return above inflation over a rolling ten-year period. To meet this requirement, we have created a balanced portfolio containing equities, fixed-income investments, properties and alternative investments. We have chosen to invest in real estate and alternatives because we want to limit the risks in our overall portfolio by supplementing it with asset classes whose returns are not expected to correlate with the equities and fixed-income markets. When reviewing the previous ten-year period (20052014), it can be seen that we met our return target by a

good margin. Returns for the portfolio in total reached 95.8% (corresponds to 7.0% on average annually) as compared with the return target for the same period of 57.9% (4.7% annually). The graph on page 13 illustrates this. Adjusted for inflation (in real terms), returns during the period have been 83.1% corresponding to 6.2% annually. We are also very pleased that for the third consecutive year, returns for the total portfolio have outperformed the reference portfolio6 returns, during 2014 by a full 3.5 percentage points (16.0% for the total portfolio, as compared to the index at 12.5%). The overweight in equities vis-à-vis fixed-income investments, as well as successful stock-picking by the asset managers we retain, primarily in global and emerging markets, explain this positive performance.

Our reference portfolio reflects our long-term, strategic allocation. The distribution of asset classes 2014 was as follows: Global equities 20%, Swedish equities 20%, Emerging markets equities 10%, Fixed-income securities 30%, Corporate bonds 5% and Alternative investments 10%. The table on page 12 shows what benchmark index we used for each type of asset class.


performance 2014


The asset managers of global and emerging market funds in particular, have not just performed very well during 2014 but also over a longer period of time. This is shown in the table below that shows performance over a five-year period. Looking at the emerging market funds, our asset managers have on average achieved a 12.4% annual return which is 8.9 percentage points more than the benchmark index (MSCI EM). As in previous years, we can say that our asset managers for Swedish equities, both out of a shorter and longer term perspective, have made strong contributions to performance in absolute terms but have not quite done as well as their benchmark index (SIXRX). Continued declining interest rates during the year are the primary reason for the high returns on fixed-income investments (7.2%).

Several of the investments within the real estate and alternative investments asset classes are long-term commitments in which the investment periods stretch over several years. In a couple of cases, we have only made initial investments. This explains why the share of assets invested in these portfolios has not increased during the year. However, the positive returns for 2014, of 7.1% and 8.8%, have contributed to the strong performance in our overall portfolio. The tables below and on the next page provide more information on performance for 2014 and our historical returns for five and ten-year periods. We consider the ten-year performance to be our most important benchmark.

performance 2014 and historic returns Return full year 2014

Return full year 2013

Average annual return 2010-2014

Profit 2014 MSEK








Swedish Equities









Global Equities*








DJSI World

Emerging Markets









Fixed-income securities














Merrill Lynch EMU






CPI + 3 %

Asset class

Corporate bonds** Real estate*** Alternative investments**** Total











CPI + 3 % 7.3%

* In this asset class, that is in total compared to DJSI, the DNB Miljöinvest is included (return 7.4 %, benchmark Wilderhill New Energy index 18.2 % for 2014). ** Holdings total over 18 months, which is why there is no long-term average return. *** Holdings total over 24 months, which is why there is no long-term average return. **** Holdings total over 38 months, which is why there is no long-term average return.


performance 2014


cumulative actual returns as compared to return target and inflation % 100

■ Return target

■ Actual return


the ten largest holdings Swedish Equities


Hennes & Mauritz




Atlas Copco












Millicom Int. Cellular

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

* The graph shows only returns for each respective full year, with one measurement point per year. The real return target was 4% during the period of 2005-2009 and was adjusted to 3% in 2010.


Global Equities Unilever Microsoft Qualcomm Waters Corp

distribution among asset classes 31 dec 2014

Check Pt Software Technologies ■ Swedish Equities

Edwards Lifesciences Corp

■ Global Equities

Varian Medical Systems ■ Emerging Markets Equities

■ Alternative investments

■ Real estate

SEB Domestica Bostäder SEB Domestica Bostäder II

■ Corporate bonds

Nordea Inst. Cross Over Fund

Excalibur SEB Credit Opportunity III SEB Microfinance Fund Generation Credit Fund Althelia Climate Fund

7,9% 2,4% 4,3%

■ Fixed-income securities Linear Tech Corp ■ Corporate bonds


■ Real estate

■ Alternative investments Schindler Holding ■ Swedish Equities

SEB Ethos Aktiefond Sverige Nordea Inst. Aktieförvaltning


Unilever ■ Global Equities

28,4% securities Alfred Berg fixed-income mandate Nordea fixed-income mandate SEB Ethos fixed-income fund


■ Fixed-income

Emerging Markets

RobecoSAM Ethos Global Generation IM Global Equity Fund First State Worldwide Sustainability Fund DNB Miljöinvest


■ Emerging Markets Equities

First State Global Emerging Market Sustainability Fund Generation IM Asia Fund

Tech Mahindra Marico Delta Electronics Natura Cosmeticos Taiwan Semiconductor Jeronimo Martins Guaranty Trust Bank Qualcomm Standard Food Corp

performance 2014




do you have to give up good returns to achieve ­sustainability?

No, not at all. Several studies show that companies who actively work with sustainability risks and opportunities are more profitable than those who do not. There are many examples of successful asset management strategies with such an orientation. But as always, it is of course also a question of asset management strategy and the competence of the asset managers. We have been fortunate in being able to find very competent asset managers who do not see sustainability as a niche but rather as an inherent element in their analyses when looking for wellmanaged and innovative companies. In regard to the actual strategy, it has been our experience that concentrated portfolios are most beneficial. This makes it possible for the asset managers to analyse the companies in depth and select the best ones as opposed to focusing on an index. It is possible to achieve a good diversification of risks in the portfolio without having hundreds of companies in it.

during 2014, the church of sweden encouraged the ­financial sector to be more long-term oriented. why?

Asset owners and asset managers as a group need to take a more long-term and sustainable approach. If they do, we can expect that more companies follow suite thus serving the more long-term needs of society. Several studies unfortunately reflect an opposite trend; that the financial sector is becoming increasingly shortterm oriented. But there are also positive signs, not least among the more progressive companies at the forefront who are acting on the global challenges we are facing, such as climate change, despite the fact that the financial sector and politicians are moving more slowly.

what is the church of sweden doing?

photo: fredrik sandin carlson

Our ambition is to take a long-term approach. This is reflected in our return target, which is based upon a ten-year time span, as well as the mandates that we give the asset managers. We continuously evaluate our asset managers, but do not focus too closely on individual years. Our long-term view is also reflected in our view of risk that is in a number of ways different from the prevailing risk-horizon in this sector. The success of asset managers is often measured and compared on the basis of short-term intervals, which leads to a tendency to not deviate from the fund’s benchmark index. This approach contributes to taking short-term actions. For us, risk primarily means not reaching our long-term return target. We consider aspects such as the environment, human rights and corporate governance as being integral parts of the definition of risk, if a long-term creation of value is to be ensured.

are there any signs of a shift in the trend?

Anders Thorendal


performance 2014

More and more organisations are working with sustainability and this applies to both investors and the companies we invest in. We chose to work primarily with those who are at the leading edge of this trend. For example, we are happy to see that a number of asset managers have begun to create incentives that promote a focus on long-term performance. The variable compensation at First State Stewart, who the Church retains, is based upon the results of three to five years’ returns and not on annual returns. Generation IM has created an incentive structure with a similar orientation. They also lower the management fee for investors who continue to invest in their funds over a longer period of time, since this makes it easier for them to make investment decisions with a long-term perspective. We hope that more actors follow their examples.

photo: un photo/mark garten

Nearly 400 000 people gathered on the streets of Manhattan in 2014 to show their support for climate change action. The UN’s Ban Ki-moon on the right.

CLIMATE IN FOCUS The United Nations’ Intergovernmental Panel on Climate Change (IPCC) has been alerting the world to how changes in the climate have affected us and our planet since 1990. In recent years, many of their fears have become reality; taking the form of for example drought, flooding and the acidification of oceans. The most serious climate effects can still be countered. But for this to occur, we have to shift from fossil fuels to renewable sources and focus intensely on energy efficiency. The financial sector plays a very important role in this conversion, both in terms of the granting of credit and asset management.

our performance The national level of the Church of Sweden has consciously acted on the climate issue for many years

through, for example, investing in companies who contribute to the reduced use of energy. In 2009, we divested our holdings in companies that extract oil, coal and oilsand. In 2013, we invested in a new fund (Althelia Climate Fund) that focuses on protecting and replanting forests in Africa and Latin America while at the same time developing methods of sustainable agriculture that reduce deforestation. In 2014, further steps were taken when we divested the few companies left in our portfolio that extract natural gas. In recent years, the Church has also begun to take a closer look at different types of measurement tools that estimate the emissions of greenhouse gases linked to the companies we invest in through various funds. We combine this information with qualitative analyses,

performance 2014


c­ onducted by MSCI ESG Research for example, as well as information from the asset managers we engage. We do this to see how well companies manage their impact on the climate by establishing targets and programmes to systematically reduce emissions and report publicly on them. All in all, the analyses indicate that we have climatesmart asset management; in part because we do not invest in companies that extract coal, oil and gas, and in part because we engage asset managers who have expertise in choosing companies who have come further in their environmental work than their competitors. Table 1 below to the left shows that almost two-thirds of the assets invested in equities are tied to companies that are good at addressing climate change according MSCI ESG Research’s assessment. Only a small percentage (approximately 3% of the investments in equities, corresponding

to nine holdings) are invested in companies that are large emitters of greenhouse gases in relation to the size of their businesses (carbon emissions intensity 4-5, see table below to the right). These companies operate, for example, in the fields of power generation, distribution of energy and water as well as waste management. Analyses include the entire value chain. All nine companies, on the average, received a high climate score from MSCI ESG Research. Scores are currently lacking for companies that correspond to a fourth of our assets in equities. A portion of them can be assumed to have larger carbon footprints, for example chemicals companies, but most of them are smaller companies that do not belong to a sector that is normally considered to be a source of high emissions. It seems likely then, that these companies have comparatively low impacts on the climate.

msci’s carbon beta score, all equities, ­capitalization weighted

msci’s analysis of companies’ carbon intensity, all equities, capitalization weighted Intensity 0-1

Score 7 Analysis not available 24%

Analysis not available

8% 20%

Score 1

2% Score 2 3% 5% Score 3

Intensity 4-5

Score 5

Score 4

The score is set in comparison with companies within the same sector and summarises the company’s level of climate work and how well they would be able to handle more stringent climate regulation. Best score = 7, worst = 1 16

performance 2014


19% 18%



Score 6

31% Intensity 1-2 23%

Intensity 3-4

6% Intensity 2-3

The figures show the level of companies’ emissions throughout the ­value chain (scope 1-3) in relation to the size of the company. The number five indicates the highest intensity.

ENGAGEMENT WITH COMPANIES Both the Church of Sweden and the asset managers we engage meet with the companies we invest in on a regular basis. This enables us to discuss both the opportunities and pitfalls that sustainability issues create. We see strong and effective sustainability efforts as an indication of quality, and this is supported in research. When Deutsche Bank took a closer look at this and compiled a number of academic studies, they concluded that companies who manage sustainability issues well tend to be more profitable. For this reason, we focus on the concrete goals and results of companies in our engagement work to ensure that they are moving in the right direction.

how we select engagement opportunities We may engage with a company as a consequence of a critical report being issued in the media or due to a legal investigation indicating that the company has acted in a manner that is in conflict with the law or other standard such as international conventions. Incidents are revealed in the course of our continuous norm-based screening, which is conducted by GES Investment Services. GES carry-out an initial analysis and if needed they initiate an engagement with the company on our behalf and on behalf of other investors. Goals are jointly formulated, and we keep a close eye on results. At the turn of the year, we had about thirty ongoing cases with the majority of them still under investiga-

tion. In a handful of cases, we have come further and see progress being made. In other cases, the Church becomes directly involved and organises its own meetings with the companies in question. This year for example, we met with TeliaSonera to discuss their challenges in Central Asia and with Stora Enso to see how they acted upon the media reports on child labour in their supply chain in Pakistan (see more on 20).

using our voice as an asset owner Both we and our asset managers consider it to be very important to meet the representatives of the companies we invest in. We are active asset owners and think that it is essential to be involved in discussions regarding company strategies. Many of the companies have quite high ambitions in regard to sustainability. For this reason, we discuss which strategies have the greatest potential. We also discuss different opportunities to co-operate with other companies, organisations and researchers to be able to scale up and achieve more. Each year, we also choose a number of thematic areas and issues that we want to further on a broader front together with other investors. During 2014, engagement work was initiated, for example, regarding companies’ approaches to taxes and how banks deal with climate change (read■ more Svenska on aktierthe next page). ■ Globala aktier ■ Emerging Market aktier

companies’ sustainability scores (msci esg research)

■ Räntebärande värdepapper ■ Företagsobligationer ■ Fastigheter ■ Alternativa placeringar


Analysis not available 21%

10% 18%


CCC 1% B 5%




A 15% BBB

Each year, MSCI ESG Research analyses companies’ sustainability work. At the end of 2014, approximately half of our holdings were in companies that had high ratings (AAA-A where AAA is best). Only 1% of the companies received the lowest rating (CCC) and we follow up on this information with our asset managers. The analyses provide an indication of where companies stand. They are based upon public information which leads to a situation in which companies who do not have transparent processes, and are more difficult to get information on (e.g. companies in emerging markets), receiving lower scores or no score at all. This is why the asset managers’ direct contact with the companies is important to being able to gather supplementary information and to propose improvements.

performance 2014


A SELECTION FROM THE CONCLUDED YEAR a responsible approach to taxes Paying taxes is a part of a company’s contract with society. Tax revenue is important for a country to be able to provide essential community services; however, out-andout illegal and aggressive tax schemes and transactions each year lead to a significant reduction in state revenues. This is especially problematic when taxes are shifted away from impoverished countries. Aggressive tax schemes also imply a financial risk. Tax legislation is now being strengthened in an ever increasing amount of countries. As revealed in one investigation carried out by MSCI ESG Research, if companies with dubious tax schemes were taxed at the countries’ average rates, their profits would diminish by up to 20%. During 2014, the Church of Sweden initiated discussions with other investors in an effort to jointly set requirements for companies to develop and publish tax policies and information on how they govern them. These schemes should be adopted and followed-up on by the company’s boards of directors.

banks and climate change The Church of Sweden participates in a broader engagement initiative, launched by the US-based Boston Common Asset Management, in which we engage with about sixty large banks who have extensive risk exposure associated with their lending to companies involved in fossil fuels. Engagement focuses on the need for thorough risk analyses and stress-tests to ensure that the operations are equipped to deal with different climate scenarios. We also encourage investment in financial products such as green bonds that can channel funds to sustainable and more climate-friendly businesses. The results of this engagement will be followed up during 2015-16.

freedom of expression and privacy in the ict sector The Church of Sweden has been involved in issues con7

cerning the freedom of expression and integrity for the last couple of years. Through our involvement in The Global Network Initiative, we have contributed to constructive engagement regarding how IT and telecom companies can, in conjunction with researchers and civil society, work to ensure that human rights are respected. More and more companies have begun to systematically address this issue, and we have for example conducted discussions with TeliaSonera, Millicom, Tele2 and ­Vodafone on these issues. All of them have improved the ­content and transparency of their work this last year. Engagement with governments has also been initiated in order to stress the need to develop legislation that is aligned with conventions on human rights and to exercise functional and democratic oversight.

child labour behind chocolate Eighty percent of the world’s cocoa comes from Ghana and the Ivory Coast where it is usual for children to work on the family farm instead of going to school. The Church has drawn attention to this issue over a period of several years through its involvement in Fairtrade and Swedwatch7 as well as other initiatives. In October, we took part in a round-table discussion with a number of the largest purchasers of cocoa in the world including Nestlé who we invest in. Over the last few years, Nestlé has expanded its sustainability work in its supply chain, and the goal is to ensure that all cooperatives are covered by its monitoring and remediation programme by 2016. The company currently assures quality with the assistance of human rights experts in the organisations Fair Labour Association and the Danish Institute for Human Rights. The Church of Sweden will continue to monitor Nestlé’s efforts and welcomes the work in this sector that was initiated during 2014 (CocoaAction) whose goal is to reach out with sustainability programmes to 300 000 farmers in West Africa leading up to 2020.

 wedwatch monitored the cocoa industry 2006 and 2009:; S


a selection from the concluded year

a selection from the concluded year


photo: eric lafforgue

photo: darren hauck

photo: china daily

photo: piyal adhikary

teliasonera’s challenges in central asia

At the beginning of the year, TV4’s Kalla Fakta investigated the pulp and paper company Stora Enso. The company’s joint venture company in Pakistan manufactures packaging from recycled paper. It was disclosed that a portion of the raw materials were bought from refuse dumps where children worked - some of them being only four years old. The Church of Sweden demanded a clear action plan and a commitment to conduct an independent investigation of the work needed to remediate this situation and to ensure the children’s best. Engagement with the company had previously been ongoing for several months since we did not have confidence in Stora Enso’s efforts to protect human rights. Prior to Pakistan, the company had been criticised for not respecting the rights of local communities in Brazil and China. Last summer, the Church’s Asset Management Council decided to refrain from investing in Stora Enso until further notice. We were not satisfied with the answers we had received and the pace of work conducted. Since that time, a new CEO has taken over and more resources have been promised. The contract that had links to the refuse dumps in Pakistan has been terminated, the company has now offered the children the opportunity to attend school and their families have been compensated for the reduced income. During 2014, Stora Enso carried out comprehensive risk assessments of its global operations in line with our demands, with a special focus on the countries where they have faced the most severe problems. We will follow-up this work during 2015.

In 2013, we divested our holdings in TeliaSonera after the serious allegations regarding corruption and the lack of a human rights strategy. Since then, we have been in close contact with the company, and in September 2014 the Church visited TeliaSonera’s subsidiaries in Kazakhstan and Uzbekistan to gain a clearer understanding of their work to alter their approach. During the trip, it became clear that the new management and board had taken comprehensive measures to prevent problems. Today, there is a compliance system of high quality in place to monitor and ensure that the new code of conduct is adhered to. Many key people have been replaced and training in anti-corruption and human rights has been carried out. At the same time, some of the countries that TeliaSonera operates in present great challenges. Authorities and business partners expect bribes and governments are doing everything they can to silence political opposition. In recent years, the Church has participated in discussions with TeliaSonera and other representatives in the ICT sector to see how companies, despite such difficulties, can conduct business in a responsible manner and also be a force for good in the most difficult markets. Co-operation is ongoing between The Global Network Initiative (in which the Church is a member) and the telecom sector’s own initiative (The Telecom Industry Dialogue) to develop best practice together with human rights experts. read more about the global network initiative:

photo: sara nordbrand

photo: swedbank robur

stora enso and child labour in pakistan

There is a great risk of child-labour occurring when Stora Enso ­manufactures packaging from recycled materials in Pakistan.


a selection from the concluded year

The Church of Sweden visited TeliaSonera’s subsidiary Ucell in ­Uzbekistan’s capital city Tasjkent in 2014.

OUR CO-OPERATION The Church of Sweden has considerable assets; however, in relation to pension funds and other institutional investors we are relatively minor investors. For this reason, the co-operation that we have with others is an important part of our work. The following initiatives were supported during 2014. un principles for responsible ­investment (pri)

the swedish forum for sustainable investment

pRI’s membership has grown vigorously in recent years to encompass more than 1 300 asset owners and asset managers who represent combined assets of $45,000 billion. The Church of Sweden became a signatory in 2007 and therein undertakes to integrate issues linked to social responsibility, the environment and corporate governance in analyses and investment decisions.

SWESIF is an independent network of organisations working with sustainable investment in Sweden. The aim of the forum is to disseminate knowledge and increase interest among institutional asset owners and asset managers. At the turn of the year SWESIF had 38 members.

read more at:

read more at:

the institutional investors group on climate change (iigcc) The IIGCC brings together 100 European investors whose aim is to achieve a low-carbon economy. The IIGCC encourages public policy that can facilitate such a transition. In total, members of the initiative represent around €9,000 billion in assets. read more at:

cdp CDP, previously named the Carbon Disclosure Project, is an organisation that works to disclose corporate emissions of greenhouse gases and report on water management strategies. The concept behind this is that greater access to information will facilitate responsible investment decisions. At present, several thousand companies report to CDP who works on behalf of about 770 institutional investors who represent combined assets under management of $92,000 billion. read more at:

sustainable value creation initiative The Sustainable Value Creation Initiative is a collaborative project initiated in 2009 by 14 influential Swedish institutional investors. The group reaches out to the board chairs and CEOs of the 100 largest listed companies in Sweden with the message that working in a structured manner with sustainability issues to secure value in the long term is essential. Combined, the investors included in the initiative represent about one-fifth of the capital traded on the Stockholm stock exchange, Nasdaq Stockholm. read more at:

the global network initiative (gni) GNI is a multi-stakeholder initiative in which ICT ­companies, civil society organisations, academics and investors are working to protect freedom of expression and privacy. Shared learning and advocacy, public reporting and independent assessment are key principles of the ­initiative. read more at:

a selection from the concluded year



governance photo: gustaf hellsing/ikon

GOVERNANCE The work described in this report is governed by the Church of Sweden’s Asset Management Council who have received their mandate from the Central Board of the Church of Sweden in accordance with the provisions of the Church Order. The following people were on the Board during 2014: bertil persson Chair Member in the General Synod since 1998. Born 1940. Elected to the Council 2007. Previous assignments Director of the Swedish Central Bank and adviser to the IMF. Alternate in the Central Board of the Church of Sweden 2006-2013. Chair of the Church Fund 1999-2006. cecilia brinck Member in Central Board of Church of Sweden. Member in the General Synod since 2005. Born 1962. Elected to the Council 2014. Present position Commissioner Stockholm City. Previous assignments Member of Parliament 2010-2014. birgitta halvarsson Member in Central Board of Church of Sweden. Member in the General Synod since 2005. Born 1957. Elected to the Council 2007. Present position Vicar Previous assignments Various board assignments with companies and public authorities; municipal commissioner of Torsby Municipality.

kajsa lindståhl External expert. Born 1943. Elected to the Council 2007. Other assignments Chair of the Board for Södersjukhuset AB and the Tumba Bruk Foundation. Board member in PRI Pensionsgaranti, Thule Foundation (the Skandia Group) and the Institute for Financial Research (SIFR). Also board member in the Investment Council of the Church of Sweden’s Pension Fund. Previous professional positions and assignments include CEO and subsequently chair of the board for Banco Fonder; chair of the Amnesty Business Group. åsa ohlström External expert. Born 1955. Elected to the Council 2007. Present assignments Business owner. Previous professional positions and assignments include CFO of Riksbyggen. CEO of BoSpar and member of board in a property management company photo: fredrik sandin carlson

members elected internally

external experts åke gustafson External expert Born 1958. Elected to the Council 2012. Present position CEO of Insurance Industry Pension Fund, FPK Other assignments Member in Movestic Asset AB’s board. Chair of the board for the Foundation De Blindas Bokfond. Previous professional positions and assignments include CEO of Länsförsäkringar Fonder. Member of board for the PSA/PSF pension funds.

From left: Åke Gustafson, Kajsa Lindståhl, Åsa Ohlström, Cecilia Brinck, Bertil Persson (absent Birigitta Halvarsson).



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photo: fredrik sandin carlsson/ikon

photo: linda mickelsson/ikon

photo: linda mickelsson/ikon

anders thorendal Treasurer and Chief Investment Officer E-mail: [email protected] Telephone: +4618-16 95 88

gunnela hahn Head of Sustainable Investment E-mail: [email protected] Telephone: +4618-16 94 21

sara nordbrand Head of Corporate Engagement E-mail: [email protected] Telephone: +4618-16 94 71

Content: The Church of Sweden Cover: Vibeke Sonntag Production and printing: Ineko 2015-SK15036 NORDIC ECOLABEL Printed matter 341142