REPORT ON HUMAN RIGHTS 2021 - Andra AP-fonden
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REPORT ON HUMAN RIGHTS 2021
Human rights is one of AP2’s sustainability focus areas. The Fund is actively engaged in integrating human rights issues into its analysis and decision-making processes, with the aim of conducting its activities in line with the UN Guiding Principles on Business and Human Rights by 2025. Protecting human rights is crucial to the achievement of the UN’s Sustainable Development Goals and is thereby a key aspect of the Fund’s mission to manage the Fund assets in an exemplary manner.
INTRODUCTION GOVERNANCE AND BUSINESS RESPONSIBLE RESPONSIBLE DUE DILIGENCE DUE DILIGENCE CASE STUDIES REFERENCE
COMMITMENT INTEGR ATION INVESTMENTS OWNERSHIP ACTUAL IMPACTS POTENTIAL IMPACTS INDEX
ABOUT ANDRA AP-FONDEN BUSINESS
Andra AP-fonden (AP2) is an independent government agency that manages AP2 is one of northern Europe’s largest asset managers with invest-
funds for insurance of income-based old-age pensions. Together with the ments all over the world in virtually all asset classes. The Fund works
other buffer funds, AP2 is part of the public pension system. The AP Funds’ actively to integrate sustainability issues, including human rights issues,
mission and objective is to manage the Fund assets for the greatest possible into its management. The majority of the assets, just over 80 per cent,
long-term benefit of the pension system. The Funds’ mission includes is managed internally, while the remaining assets are invested with the
managing the Fund assets in an exemplary manner through responsible help of external asset managers. Read more on the Fund’s website:
investments and responsible ownership. Asset management operations must www.ap2.se
focus especially on how sustainable development can be promoted without
jeopardising the overall objective concerning return and risk.
INTEGRATION OF SUSTAINABIITY VALUES AND COMMITMENTS
AP2’s vision is “World-class management”. This requires the integration of AP2’s core values are based on the Swedish State’s core values, which among other things entails that the
sustainability into all analysis and investment processes. By working Fund undertakes to comply with international conventions ratified by Sweden. The Fund’s fundamental
actively with and integrating sustainability into the business, AP2 can values are characterised by democracy, fundamental human rights, the equal value of all people, and
create value, limit risks and promote sustainable development. Sustain- respect for the individual’s freedom and dignity in accordance with the principle that human rights are
ability is important for the Fund’s performance and therefore plays a key universal and must apply to everyone. AP2 undertakes to comply with internationally recognised human
role in the overall investment strategy. In AP2’s investment convictions, rights standards, including:
sustainability also plays a dominant role in the form of two of the ten
overall convictions. These convictions state that sustainability pays off in • The Universal Declaration of Human Rights
asset management and that climate change is a systemic risk. Sustainability • The International Covenant on Economic, Social and Cultural Rights
includes the environment, ethics, social issues and corporate governance. • The International Covenant on Civil and Political Rights
AP2’s approach to sustainability in its management is governed by four • The ILO’s Core Conventions.
focus areas: climate, diversity, corporate governance and human rights. The
work on human rights is primarily driven from a severity perspective, with The UN Guiding Principles on Business and Human Rights stipulate the company’s responsibility for
focus on the potentially most severe impacts on people, in accordance with managing risks of negative impacts on human rights that the company may cause, contribute to or have a
the UN Guiding Principles. direct link to. AP2 is in the process of implementing these principles and the goal is for the Fund’s activities
to be conducted in line with the UN Guiding Principles by 2025 at the latest.
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AP2’s links to human rights
UN Guiding Principles on Business
According to the UN Guiding Principles, companies may cause, contribute to or be directly
and Human Rights
linked to negative impacts on human rights through their operations or business relationships.
The UN Guiding Principles on Business and Human Rights (UNGPs) are a
AP2 has many roles: employer, customer to suppliers, counterparty to other financial
global standard that provides a framework to define how countries and
institutions, asset owner and asset manager. In all of these roles, the Fund can be linked to companies should act in order to eliminate the adverse impacts that
impacts on people, through its own activities and through its business relationships. The Fund companies may have on human rights. The framework is based on three
assesses that the most severe risks of negative impacts on people lie in the role of asset owner foundations:
and asset manager, whereby AP2 may contribute or be directly linked to negative impacts
• The Government duty to protect human rights and
through the companies in which the Fund has invested. fundamental freedoms.;
• The corporate responsibility to respect human rights
The focus of this report is therefore on understanding stakeholders view the work to implement the UN Guiding throughout the value chain; and
AP2’s risks in its work as investor, asset AP Funds’ sustainability work and Principles on Business and Human • Access to remedy for victims of business-related abuses.
owner and asset manager. In the report, impacts in relation to returns and Rights, in terms of both progress and
Corporates include business entities with all activities in all sectors,
the term “portfolio companies” refers to results. The dialogue was conducted by the challenges involved. Hopefully, this
including investors. AP2 is a government agency with activities within
companies in which the Fund invests. an external consultant, via a web report will contribute to more extensive
asset management and is thereby subject to a corporate responsibility to
It is primarily in its role as employer, survey of representatives of dialogue on human rights issues in the respect human rights, as well as the relevant aspects of the government’s
that AP2 can have direct negative stakeholder groups comprising clients, financial industry. obligation to protect human rights. This means that AP2 must seek to
impacts and thereby hold clear portfolio companies, suppliers, This report is AP2’s second using the prevent human rights violations and to manage any negative impacts
responsibility for remediation. The employees, industry colleagues, UN Guiding Principles’ reporting associated with the Fund. According to the principles, business enterprises
Fund’s complaints mechanism includes beneficiaries, society and NGOs. framework. Using this framework helps must have a public human rights policy, a human rights due diligence
a whistleblower scheme whereby Stakeholders consider the three most the Fund to focus on the most important process to identify, prevent, mitigate and report on their impacts on
employees can anonymously report important sustainability issues for the issues that are considered to be of human rights, and processes to enable the remediation of any adverse
incidents. funds to be anti-corruption, human greatest interest to stakeholders. On human rights impacts they cause or to which they contribute.
rights and climate impacts. Stakeholders pages 19-20, there is a reference index
Read more about the UN Guiding Principles on Business and Human
A priority issue for the Fund’s would like more communication with all of the questions relating to the
Rights at: www.ohchr.org/Documents/Publications/
stakeholders generally and specifically about the AP reporting framework and page
GuidingPrinciplesBusinessHR_EN.pdf
Human rights is one of AP2’s focus Funds’ company dialogues. references to AP2’s response. The Fund
areas, and is also an issue given high welcomes input. This can be emailed to
priority by the Fund’s stakeholders. About the report info@ap2.se
The AP Funds conducted a stake- Through this report, the Fund intends
holder dialogue in 2020, with the aim of to increase the transparency of its
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AP2’s governance and
commitment to human rights
AP2 works actively to integrate human rights issues into its analysis and decision-making
processes. AP2 is committed to the promotion of sustainable development through
responsible investment and responsible ownership. Protecting human rights is crucial to
the achievement of the UN’s Sustainable Development Goals and is thereby a key aspect
of the Fund’s management of the Fund assets in an exemplary manner.
Organisation and assignment of relevant parts of the organisation are ongoing reports on the Fund’s work as basis of impacts on people, and not the feedback and assistance in understanding
responsibilities involved in the work. By involving part of the corporate governance and financial risk to the investment. and interpreting the principles according
AP2’s human rights policy, corporate different parts of the organisation, sustainability reporting, and decides on The policy also clarifies the organisation to the Fund’s activities as an asset
governance policy and sustainability knowledge and commitment to human the exclusion of portfolio companies. and division of responsibility for the manager.
policy are the governing documents for rights issues is raised throughout the Fund’s human rights work, as well as
the Fund’s position on human rights. Fund’s activities. Human Rights Policy expectations of employees, suppliers Implementation and knowledge
Each policy is available on the Fund’s The work is led by one of the Fund’s AP2’s human rights policy was updated and business partners. In the policy, building in the organisation
external website, and for the Fund’s sustainability analysts and a steering and adopted by the Board of Directors in AP2 undertakes to respect internationally AP2 conducts an annual internal
employees the policies are published on group consisting of the Fund’s General 2020. The policy defines AP2’s connection recognised human rights standards. The mandatory training in human rights for all
the intranet. Counsel, Head of Communications and to various human rights risks and also the policy is published at: www.ap2.se. of its employees. The training conducted
AP2 has been working with human Head of Strategy. The fact that members severity of the risks. The policy also The policy was developed by internal in 2020 was based on AP2’s updated
rights issues for a long time. One of the of the management team are also mem- defines the process for managing the human rights experts, together with the human rights policy, and was followed up
Fund’s sustainability analysts is dedicated bers of the steering group gives the Fund’s human rights impacts. In steering group. External inspiration was in the spring of 2021 with a workshop with
to developing the Fund’s integration of management a good insight into the accordance with the UN Guiding primarily drawn from the UN Guiding specific examples and applications. An
human rights issues and increasing the work and ensures clear commitment Principles, this due diligence process Principles on Business and Human Rights, important aspect of the implementation
Fund’s expertise in these issues. Working internally and externally. The CEO holds includes identification, assessment, with various implementation tools and of the policy throughout the organisation
groups of employees from different areas the ultimate responsibility for the work. management, reporting and remediation interpretation documents issued by the is to ensure that all employees understand
of the Fund’s activities follow up on Reporting on the Fund’s activities is sub- of negative impacts on people. In Office of the United Nations High Com- the policy and what it means for them in
human rights issues in their day-to-day mitted to the Fund’s management, who accordance with the UN Guiding missioner for Human Rights (OHCHR). their work.
operations. The composition of the also participate in discussions concerning Principles, the Fund focuses its work on During this work, the Shift organisation,
groups varies, depending on the topics in the Fund’s strategy for human rights human rights from a severity perspective. which has leading expertise in the UN
focus, so that the right expertise and issues. The Board of Directors receives This entails that risks are assessed on the Guiding Principles, provided valuable
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Integration of human rights issues
into AP2’s investment activities
With the aim to create the greatest possible benefit for pensioners,
Integration of respect for human rights in
the Fund invests globally to achieve favourable risk diversification.
investment decisions and in the analyses
This means that AP2’s asset management is exposed to countries
and processes on which these are based.
and sectors with potential risks of negative impacts on human rights. Includes processes for e.g.:
People that might be adversely affected include employees in the
Fund’s various portfolio companies, consumers of the portfolio Responsible • Index design
companies’ products or communities that are adversely affected by investments •
•
Geographical exposure
External managers
the portfolio companies’ activities. AP2 works actively to manage • Exclusion
these risks. This work is integrated into several processes, which can
be divided into the processes that take place in conjunction with
investment analysis and decisions and the processes that are linked
to the Fund’s role as an owner.
Due Diligence process to identify and
manage risks related to human rights in
Responsible the portfolio. Includes processes for
ownership actual and potential risks and comprises:
• Risk identification
• Risk management – dialogue
• Follow-up
• Remediation
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Responsible investments –
integrating human rights issues
into investment processes Responsible
investments
Development of indices identify companies involved in human Fund’s human rights policy. The Fund
AP2 works actively to integrate sustain- rights controversies, which thus have a may decide not to include any listed
ability issues, including human rights poor sustainability profile and can be assets in a country in its portfolios, if
issues, into its fund management. removed from the index. Further there are strong government-related
Examples of this are the development examples are the indices governing sustainability reasons, such as human
of two proprietary indices that are the management of bonds in rights violations. In countries where the
used in the management of foreign emerging economies. These indices are state violates the UN Convention on
equities in developed and emerging externally designed, but adhere to the Human Rights, often with poorly func-
subject to very high risk, the Fund it is possible to arrange meetings with
economies, and a proprietary index same principle that securities tioning legal systems and widespread
conducts an in-depth analysis of the decision-makers, whether the govern-
for corporate bonds. The Fund only associated with good sustainability corruption, there is a great risk that
situation, to gain a more detailed ment listens to investors’ views, or
invests in the companies included in characteristics are favoured, while companies will contribute to negative
understanding of which rights are vio- whether it is possible to influence
the index’s underlying selection of holdings with poorer sustainability impacts on people.
lated, how often and in what way they developments more indirectly, for
these indices. Which companies are characteristics are reduced or, in The Fund uses an external data pro-
are violated, and the country’s perfor- example via counterparties such as
included in an index depends on how extreme cases, removed completely. vider to analyse and identify countries
mance on human rights over time. local external portfolio managers. If
the index is designed. In the develop- where the risk of human rights viola-
For the countries that are flagged up the Fund assesses that it is not realistic
ment of the Fund’s own indices, Geographical exposure tions is very high. The assessment
in this analysis, the Fund’s opportunities to expect the Fund to be able to
companies with a good sustainability AP2 has developed a framework for takes account of the quality of the
to influence positive development in contribute to a positive influence on
profile have a greater weighting in the managing its geographical exposure legal protection of human rights, how
the country are also assessed, and the performance of a flagged country,
indices and companies with a poorer with a focus on human rights. This well the legal and policing system
whether it is better for the people there may be sustainability grounds
sustainability profile have a lower framework is based, among other implements this legal protection, and
affected if the Fund invests in the coun- not to include the country in the Fund’s
weighting. Among other things, the things, on the UN Guiding Principles on the extent to which human rights vio-
try or not. The Fund considers whether portfolios.
Fund has incorporated methods to Business and Human Rights and the lations actually take place. In countries
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External managers international conventions is assessed AP2’s commitment to respecting grounds, such as the tobacco industry. years in accordance with the guide-
Selection and evaluation of external to be high. This is to continuously human rights and raising the Companies may also be excluded as a lines of the Council on Ethics1, the
managers ensure that the managers integrate managers’ awareness and competence consequence of the company acting, Fund will decide whether the company
Approximately 20 per cent of AP2’s human rights issues in their asset regarding these principles. The seriously and systematically, in should be excluded. If a portfolio
assets are managed by external portfo- management and that adhere to the managers also received training in the violation of international conventions company is excluded, it is no longer
lio managers. When a portfolio man- Fund’s human rights policy. Fund’s new human rights policy and on human rights. If such a violation is possible for AP2 to invest in the
ager is selected, AP2 takes into account AP2 has three externally managed informed of the Fund’s expectations suspected, an investigation and dialogue company. A decision on exclusion is
how well the manager integrates sus- mandates in domestic Chinese that its business partners respect will first take place in accordance with taken by AP2’s Board of Directors, on
tainability factors, including human equities. The Fund finds that human rights in their business the Fund’s due diligence process the recommendation of the Council
rights, into its portfolio management. In companies and the market in China is activities. Ongoing follow-up of the described on page 9. If dialogue with on Ethics and/or the Fund’s
cases where the Fund engages external difficult compared to other markets. managers’ work takes place on a a portfolio company does not result management. A list of excluded
portfolio managers for discretionary This presents special sustainability quarterly basis, via a written report in a satisfactory outcome within a companies can be found on AP2’s
mandates, where the manager has a challenges when investing in the from the managers, and through reasonable time frame, normally four website at: www.ap2.se.
mandate to invest part of the Fund’s country. Within the framework discussion of specific portfolio
capital within the framework of a described above for managing companies and the risks that the
defined investment strategy, the geographical exposure, China has also companies or their sectors may
managers must accept the Fund’s
corporate governance policy. AP2’s
been assessed by the Fund as a high-
risk area within human rights issues.
entail. The managers are also subject
to annual evaluation of their
“AP2 has decided that certain assets
external managers within private The Fund therefore engages in close sustainability work, among other should not be included in the Fund’s
portfolios. These may be assets in
equity and real estate, are required to and active collaboration with its things. If the Fund finds that the
comply with the principles of the UN external managers in China in order portfolio manager does not work
Global Compact.. During the spring of
2021, the Fund held digital training
to ensure that sustainability aspects,
including human rights, are integrated
with human rights in a satisfactory
manner, the Fund may terminate its
countries that are subject to
courses in its updated human rights
policy with external portfolio managers
into investment decisions. This is
primarily done through dialogue with
cooperation with the manager. international sanctions imposed by
operating in countries that the Fund the managers, to which AP2 can Assets in which AP2 does not invest Sweden, or companies in sectors in
which the fund does not invest on
considers to entail a high risk in terms contribute with expertise and tools. AP2 has decided that certain assets
of human rights. The managers’ work is Since 2017, this dialogue has focused should not be included in the Fund’s
followed up and assessed on an annual
basis. The Fund engages in close and
primarily on human rights issues. For
example, a more in-depth review of
portfolios. These may be assets in
countries that are subject to interna-
sustainability grounds, such as the
active dialogue with external managers
that invest in portfolio companies or in
the UN Guiding Principles on Business
and Human Rights has been
tional sanctions imposed by Sweden, or
companies in sectors in which the Fund
tobacco industry.”
regions where the risk of violations of conducted, with the aim of conveying does not invest on sustainability
1
The Council on Ethics of the Swedish AP Funds is
described on page 10.
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Responsible ownership –
due diligence concerning
actual and potential impacts Responsible
ownership
A company may cause, contribute to or be directly linked to a large number of
human rights risks. A key element of the UN Guiding Principles on Business and
Human Rights is therefore that companies must be aware of their risks, i.e.
identify the risks, and assess and prioritise which risks to act on first.
It is important that the prioritisation is to or be directly linked to negative • Actual impacts are incidents
based on a severity assessment, so impacts in the companies in which the where the Fund has an indication
that the risks assessed to have the Fund has invested. that a violation of human rights
most severe human rights impacts on In 2020, the Fund continued to may already have occurred.
people are managed first – these are develop a due diligence process
called “salient human rights issues”. concerning human rights in portfolio • Potential impacts refer to when
AP2’s human rights policy highlights companies. The process includes risk the Fund has a portfolio
this principle of salience in identification, risk management, company in which there are no
accordance with the UN Guiding follow-up and external reporting. The confirmed controversies or
Principles. This entails that risks are due diligence process is an iterative irregularities that have been
assessed on the basis of impacts on and ongoing process that will noticed by the media, local
people and not the financial risk continue to evolve over time. AP2 authorities or in any other way,
related to the investment. distinguishes between actual and but that operates in sectors and
The Fund assesses that its most potential negative impacts on people countries with a high risk of
salient risks of negative impacts on and has different processes for these negative impacts on people.
people concern are related to its – a reactive due diligence process for
activities as asset owner and asset actual impacts and a proactive
manager, where AP2 can contribute process for potential impacts.
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Due diligence in the event of
actual impacts – collaboration
through the Council on Ethics
The process for actual risks is managed in collaboration with the Council on Ethics of the
Swedish AP Funds. Twice a year, a norm-based review of the Fund’s holdings of listed equities
is conducted. As from 2021, AP2 has introduced a similar, proprietary process for corporate
credits. The review identifies portfolio companies that are deemed to have violated
international conventions and guidelines adopted by Sweden.
The Council on Ethics was formed in 2007 Funds’ influence as investors to ensure process through which it defines which
by the First, Second, Third and Fourth AP that such violations cease, that systems companies and incidents to focus on in
Funds to coordinate work on environmental designed to prevent any recurrence are its engagement work.
and ethical issues. The Council on Ethics implemented and that measures are The focus companies’ efforts are
includes representatives from each AP taken to prevent any future violations. monitored continuously throughout the
Fund, together with a full-time Secretary Through their commitment and by dialogue according to a fixed action plan.
General. Human rights issues are an deploying their power as major If the dialogue with the portfolio company
important aspect of the sustainability investors in reacting to violations of does not result in a satisfactory outcome,
work conducted by the Council on Ethics. international conventions, as well as based on an overall assessment, the
The work is based on the principles of demanding change, the Funds can make Council on Ethics may recommend
commitment, action and change, with the a difference. AP2 will only consider exclusion, and AP2 will decide whether
aim of making a difference. The Council divesting its holdings in a company in the company should be excluded from
on Ethics identifies companies that can be cases where this cannot be achieved. the Fund’s potential investments.
linked to violations of international The Council on Ethics has engaged The Council on Ethics also runs a
conventions and focuses on influencing two service providers for support in number of projects within its focus
such companies to deal with confirmed research and engagement through areas: climate, environment, human
violations, to implement preventive dialogue to create change in portfolio rights and business ethics. In the field
systems and to adopt measures to companies. Through a broad network of of human rights, the Council on Ethics
prevent future violations. local sources, these suppliers also help focuses on child labour and forced
If companies in which the AP Funds have the AP Funds to stay updated through labour, as well as health and safety. For
invested can be linked to the violation of an external monitoring of human rights more information about the Council on
international convention, the Concil of issues globally. The Council on Ethics Ethics’ activities, see the annual report at
Ethics’ core strategy is to exert the AP works according to a systematic work www.etikradet.se
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The Council on Ethics’ incident- from their families. Previous inmates GEOGRAPHICAL BREAKDOWN OF 423 REPORTED INCIDENTS IN 2020
driven dialogue in 2020 who have managed to escape to other
In 2020, the Council on Ethics countries report torture and brainwash-
registered 423 incidents from 363 ing and of being forced to denounce
companies as a result of the norm- their faith. Initially, the Chinese govern-
based screening. These incidents were ment denied the existence of these
addressed in dialogue with the camps, but they are now formally
companies. The identified companies referred to as “vocational reeducation
are located all over the world, with centres”. In 2019, Hikvision’s products Europe 10%
almost half of them in Asia. Of the were blacklisted in the USA and the North America 17%
reported incidents, 59 per cent were company’s shares have been excluded
related to human rights or labour law by several European funds.
issues. In 2020, the Council on Ethics In accordance with the UN Guiding Asia and Oceania 48%
was directly involved in around 30 Principles, AP2 seeks to exert owner-
company dialogues concerning ship influence on portfolio companies
Central and South
selected reported incidents whereby to improve, and thus does not immedi- America 10% Africa 15%
the violations were assessed to be ately sell or exclude holdings that may
salient, confirmed and well documented. be problematic. Since AP2 became
aware of the situation in Xinjiang prov-
Hikvision – an active dialogue on ince, the Fund has been in dialogue
actual impacts with Hikvision directly, via local fund
Hangzhou Hikvision Digital Technology managers, and later through Ap2’s
Co., Ltd. (Hikvision) sells surveillance responsibility for the Council on Ethics’
equipment and is one of the largest dialogue via the external consultant
global suppliers of this type of product. that assists in engagement processes.
According to several media sources, the Collaboration with the Council on Ethics 2. The company must implement a The steps they have taken so far intends to terminate previously initiated
company has sold equipment to the increases AP2’s opportunities to exert Human Rights Due Diligence include hiring external advisers to involvement in the region. To improve
Chinese state, which can link the com- influence. Since the start of the dia- (HRDD) process in line with conduct an independent assessment of its ability to address human rights
pany to the state’s surveillance and logue, the company has shown a grow- international standards. the company’s role in the projects issues, the company will also establish
control of the Uyghur population and ing understanding that this is a problem 3. The company must increase its identified in Xinjiang province and a global advisory committee with
other Muslim ethnic groups in “reedu- that must be addressed. The dialogue transparency in reporting on submit recommendations for international experts. Continued
cation facilities” in Xinjiang province. It has the following objectives: human rights issues. appropriate action. Hikvision states dialogue is planned, with follow-up of
is reported that, on the basis of their that they are currently working on a the company’s plan for, and
1. Hikvision must take measures Hikvision has accepted that their plan to follow the recommendations implementation of, processes and
ethnicity and their faith, up to 1.5 mil-
to ensure that the surveillance human rights practices must be from the independent investigation. measures to ensure that its technology
lion Uyghurs and other Muslims have
equipment it sells does not improved, with specific focus on due The company has not participated in is not used in a way that infringes the
been placed in these facilities without
contribute to human rights diligence and greater transparency. tenders in Xinjiang since 2018 and right to privacy and other human rights.
trial and have often been separated
violations.
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Council on Ethics projects a short space of time and the plat-
Below is an example of how the Coun- forms are of great positive value by
cil on Ethics jointly runs a project con- increasing the availability of informa-
cerning human rights. Further exam- tion and transparency, but this has
ples of this work are the proactive also presented new challenges linked
project to prevent forced labour to many complex issues, such as the
described on page 16 and the tailings collection, use and commercialisation
dam project described on page 17. of personal data, terrorism, manipula-
tion of elections and serious conse-
The Council on Ethics sets quences for the vulnerable and groups at
requirements for the technology risk, such as children and human
sector concerning human rights rights champions.
Technology companies are a funda- In collaboration with the Danish
mental part of the global community Institute for Human Rights, the Council
and their platforms are used by bil- on Ethics has therefore developed a
lions of people every day. The Inter- document for the technology sector
net, mobile phones and social media with the expectations of how the
have become an integral part of our sector should work strategically on
everyday lives. The Council on Ethics human rights. The purpose of this
has analysed what can reasonably be document is to serve as a platform for
expected of companies such as Face- the Council on Ethics and for other
book, Google (Alphabet), Twitter and investors in order to conduct a more
others, based on the Council on Eth- constructive dialogue with technology
ics’ convention-based working model, sector companies concerning their
but also on the UN Guiding Principles responsibility for human rights.
on Business and Human Rights. These
companies have grown rapidly within
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AP2’s due diligence process in
the event of potential impacts
AP2 has developed a process for due diligence in the event of potential negative impacts on
people. The process is focused on the asset classes of listed global equities and corporate
credits, which together represent around 40 per cent of the Fund’s total portfolio.
The Fund mainly manages the asset company analysed. Twelve human PROCESS FOR POTENTIAL RISKS
classes through quantitative manage- rights and risks associated with these
ment, which entails small holdings in a are covered by and assessed in the PROCESS FOR POTENTIAL RISKS Current status
Risk identification Risk assessment Collaboration
large number of portfolio companies model: and objectives of opportunities Dialogue Evaluation
engagement
that operate worldwide, and in a wide
• Child labour
range of sectors. The diversified
• Forced labour
portfolio is a particular reason to
• Migrant workers Definition of the Annual evaluation
require an overview of the risks in this Systematic Analysis of risk at Identification and
current status of companies in
• Decent wages screening of company level evaluation of Implementation
particular asset class. The process is and desired dialogue based
• Decent working hours potentially salient based on severity relevant of dialogue
outcome of the on defined
illustrated in the figure below. risks in a portfolio principle collaborations
• Right of association and right to dialogue objectives
collective bargaining
Risk identification
• Discrimination
Potentially salient risks are identified
• Health and safety
through a proprietary quantitative
• Rights of indigenous peoples
data-driven model. The model is based
• Land rights Objectives Objectives Objectives
on data from an external supplier, can be cannot be
• Personal integrity achieved achieved achieved
which facilitates assessments of human
• Corruption
rights risks at sector and country level.
The risks are quantified from a severity
The model is updated with new data Continued End
perspective in line with the Fund’s dialogue
Dialogue relation-
on a quarterly basis, and identifies sec- ends ship
criteria and recommendations from
tors with a very high risk of violations
Shift, with a focus on impacts on
associated with these risks and rights.
people and not on financial risk for the
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In addition, the same analysis is Risk assessment Countries with high risk
Of which
conducted at national level, whereby In this step, the risks at company level High-risk sectors in the sector (in number in active Ongoing proactive
(in descending order of risk descending order of risk Number of reactive work in the sector
countries assessed to have a high risk are assessed from a severity
level) level) companies dialogue (page of this report)
level concerning these issues are perspective, i.e. with focus on the
identified. impacts on people and not the Council on Ethics:
Clothes, shoes and
China, India, Brazil 7 0 forced labour project
The results of the model are used to financial risk. Special consideration is accessories
(page 16)
prioritise the Fund’s proactive work with made of the potential negative impacts
selected companies. The Fund has on the basis of: Hotels China, Malaysia 2 0
chosen to prioritise companies that
• Scale – the severity of the Council on Ethics:
operate in a combination of a high-risk Engineering and China, India, Brazil,
impacts for those affected 15 1 forced labour project
construction Malaysia, Mexico
sector and a high-risk country. One (page 16)
• Scope – how many people are
challenge presented by the work on the
at risk of being affected Council on Ethics:
model has been to define the China, India, Mexico,
• Opportunities for remediation Mining 9 2 dialogue on tailings
geographical exposure of companies Malaysia
dams (page 17)
• Whether vulnerable groups
that, for example, have a head office in
such as women, children, Agricultural products, Proactive work
one country (with low risk), but China, Brazil,
minorities or indigenous peo- meat production and 14 2 through portfolio
production in another (with high risk). Indonesia, Malaysia
ples are adversely affected. dairy managers (page 17)
The Fund assesses that it is a
reasonable first step to focus on Total 47 5
The company-level analysis is based
companies that are based in high-risk
on externally available company infor-
countries, thereby also increasing the
mation, external advisers, and local
Fund’s understanding of the local risks
organisations and experts within the
and how these should also be
addressed by companies based in other
relevant sectors, regions and issues. At the end of 2020, this
process resulted in an initial
Of the companies identified in this
countries, but with activities in high-risk
process, five companies are already
areas. SECTOR COUNTRY
As previously stated, AP2 is exposed
subject to incident-driven dialogue due
to actual controversies, whereby the
list of 47 companies, in six ANALYSIS ANALYSIS
countries and in six sectors.
to a large number of potential risks
Council on Ethics conducts dialogue VULNERABLE
through its numerous holdings and the GROUPS
activities through the service providers.
considerable diversification across
sectors and countries. The focus has
The Fund also notes that the Council on The risk was highest for forced
labour and violation of the
Ethics’ projects and proactive work
therefore been on using the model to
through AP2’s portfolio managers are
define the combinations of sectors and
countries where the risk can be defined
in progress in several of the sectors; see
the table below.
right to a living wage. COMPANY
ANALYSIS
as very high, in order to manage risks in
a reasonable number of companies.
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First focus area in Collaboration initiatives in the
the due diligence process clothing and footwear industry
The conclusion from the risk assessment is to choose the clothing and footwear industry in
With focus on the clothing and footwear industry in China and human rights issues
China as the Fund’s first focus area to be managed directly in the due diligence process, with
related to forced labour and the right to a living wage, several relevant collaborative
focus on the risks of forced labour and the right to a living wage. This sector has the highest
initiatives have been identified and evaluated. This process is still active and additional
combined risk level, since four of the six companies with the highest risk in the portfolio are
collaboration opportunities are evaluated on an ongoing basis. During 2020 and 2021,
included in this sector and region. The Fund also notes that in the risk analysis these companies
AP2 has engaged in the following initiatives linked to the focus area identified:
are deemed to have the highest possible risk level in terms of the identified risks of forced
labour and the right to a living wage. The selected sector also has high relevance according to • Sustainalytics’ proactive commitment with focus on forced labour, through
the criterion for particularly vulnerable groups, as the textile sector has considerable exposure the Council on Ethics (see fact box)
to the Uyghur population’s situation in Xinjiang province. The Fund also notes that this sector • The Investor Alliance for Human Rights is a collective platform for
and region are under-represented in the selection of incident-driven dialogues and that this responsible investment based on respect for fundamental human rights. It is a
can justify a greater need for proactive risk management. member-based, non-profit initiative that focuses on investor responsibility to
respect human rights through corporate engagement. The Alliance gathers
over 170 institutions from 18 countries, with total assets of USD 5,500 billion.
Within the framework of the Investor Alliance, AP2 has engaged in two initiatives that
Current situation and objectives of information and is supplemented with Evaluation are particularly relevant for the companies on which the Fund focuses in its proactive
engagement information that the companies share An evaluation takes place annually on due diligence:
Prior to the engagement, the objective in the course of the engagement. the basis of the model described • Uyghur Region Engagement Group, which works to encourage
of the dialogue is defined on the basis above, as well as the status of the companies to understand and manage their exposure to the situation
of a model for evaluating the issue in Collaboration dialogue in relation to how long the of the Uyghurs in Xinjiang province in China, which is of great
question. A current-situation analysis is AP2 welcomes collaboration with other dialogue has been ongoing. Based on relevance to the textile industry because cotton from the region
performed by the companies in parties on human rights issues. As the evaluation, a decision can be made accounts for over 80 per cent of China’s cotton production, and also on
question, in order to achieve a starting these issues are often both complex to: the basis of links to forced displacements and forced labour in other
point for planning and setting goals for and global, the Fund may be able to parts of the textile production value chain2.
• Apparel & Footwear Group /Know the Chain, which is a broad
the dialogue. The same model is used exert greater influence in collaboration • Close the dialogue if the
collaboration with, among others, PRI and the UN Business and Human
for evaluation of the dialogue. The with other parties. objectives have been achieved;
Rights Resource Centre, which maps supply chains and highlights
evaluation is based on indicators with a • Continue the dialogue if the
human rights risks, while supporting investor engagement with
focus on three areas: Dialogue objectives are deemed to be
companies on this basis.
The company dialogue progress is achievable; or
• Commitment and governance
tracked through four stages: Contact • End the relationship and sell the Experience so far from these collaborations is very positive and valuable contacts are
• Due diligence
established, Commitment, Strategy and holding, if the Fund, based on the established with local experts and representatives from vulnerable groups, as well as
• Transparency
Implementation. The status of the evaluation, assesses that it will not investors with extensive knowledge and experience from dialogue work and
The initial evaluation takes place with dialogue is continuously updated in the be possible to achieve the established company contacts.
the help of publicly available follow-up model. objectives.
2
Uyghurs for sale, ‘Re-education’, forced labour and surveillance beyond
Xinjiang , Vicky Xiuzhong Xu, ASPI Policy Brief, Report No. 26/2020.
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Background: Council on Ethics’ project against forced labour
The Council on Ethics participates in a three-year proactive commitment led by Sustainalytics, with focus on forced labour.
Forced labour or modern slavery is a collective term for situations where people cannot leave work or the abusive situation, usually due to
coercion, threats or violence. In 2016, the ILO estimated that as many as 40 million people are exposed to forced labour or modern slavery3.
Given the extent of the problem, there is a great need for companies to ensure, in accordance with the UN Guiding Principles, that they do not
cause, contribute to or can be directly linked in any other way to these violations. As an investor, through its portfolio companies, AP2 may be
linked to the risk of forced labour.
Among the sectors to which the Fund is exposed, the incidence of forced labour is greatest in the construction and manufacturing sectors, with
the latter including the textile sector. The project will therefore focus on companies in these sectors. Twenty companies have been selected; eight
within construction and technology and 12 within textiles, with different geographical bases and positions in the value chain, and different levels
of sustainability work and transparency. The companies are evaluated against six key performance indicators that have been defined to cover
important aspects of the companies’ due diligence. Based on publicly available information, all companies have been evaluated against these
KPIs, which will then be followed up during the course of the project. This basic evaluation shows great variations in the companies’ reporting and
activities related to forced labour. The textile sector companies have generally achieved higher ratings than the construction companies, which
may reflect a greater focus on the issues within the industry in the past.
3
https://www.ilo.org/wcmsp5/groups/public/@dgreports/@dcomm/
documents/publication/wcms_575479.pdf.
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Case studies: Proactive due
diligence in practice
Vale – focus on potential hazards technical information for every tailings labour, decent wages and working investments in agricultural real estate, the Fund's values of long-term invest-
concerning tailings dams dam that they fully own or co-own. hours, as well as the rights of with focus on Brazil. A more detailed ment and sustainability. In Brazil, AP2
AP2’s Report on Human Rights 2019 The Council on Ethics and the Church indigenous peoples and migrant description of this work can be found in invests through two jointly-owned
described the Vale case, the extensive of England’s Pensions Board were also workers. the Fund’s Report on Human Rights companies, TCGA and TCGA II, which
dialogue that AP2 and the Council on PRI’s (Principles for Responsible The Fund’s assessment is that these 2019, which is available for download at are managed by Westchester, Nuveen’s
Ethics had with Vale during 2015-2019, Investment) representatives in an risks are salient, based on the criteria of www.ap2.se. company for investments in the
and the decision to exclude the company international working group that has scale, scope and opportunity for Investment in agricultural real agricultural area. Nuveen is one of the
from the Fund’s portfolios in May 2019. worked to deliver a global safety remediation. Within agriculture, there is estate is an element of AP2’s efforts largest asset managers in the world and
Following the collapse of the Vale- standard for mine tailings dams. The also an increased likelihood that to diversify the overall portfolio. 2.9 has particular expertise in such areas as
owned dam in Brumadinho, Brazil, in global database of all tailings dams was particularly vulnerable groups such as per cent of the Fund’s assets under agricultural investments. Through joint
January 2019 and its tragic consequences, in place in January 2020. The next step, women, children, migrants and management are invested in ownership, and among other things
including loss of life, loss of livelihood the creation of a common global indigenous people will be affected, agricultural real estate. The Fund’s through Board work, AP2 has a good
and catastrophic environmental standard for tailings dams, was which increases the degree of salience. strategy is to invest in large-scale insight into the work of both the
destruction, the Council on Ethics, the completed in June 2020. The project AP2 believes that it is directly linked to agricultural real estate in countries with companies and their portfolio
Church of England Pensions Board and also received the 2020 Stewardship these potential risks through its clearly-defined legal structures. This managers, which enables the Fund to
investors all over the world launched a Project of the Year Award, which is investments in the sector. These consist excludes many geographical regions work actively to improve the companies’
collaboration to focus on safety in the presented by PRI. More information is of investments in agricultural real estate from investment. Agricultural real and the managers’ sustainability work.
mining industry. The parties to the available at www.etikradet.se and shares in listed companies in the estate owned within the framework of Human rights issues are an integral
investor collaboration have more than Fund’s global equities portfolio. AP2’s holdings is located in the USA, aspect of the managers’ and jointly-
SEK 10,000 billion in assets under Management of potentially serious Holdings in the listed portfolio Brazil, Australia, Poland, New Zealand owned companies’ processes for
management. Their demand was for risks in the agricultural sector in companies are covered by the process and Chile. The focus of this report agricultural investments.
improved safety at mine tailings dams Brazil previously described, i.e. reviews via a remains on Brazil, where the risk of AP2 and Nuveen apply the global
and for a global public database (www. The agricultural sector has a high level norm-based screening twice a year. For negative impacts on people is “Principles for Responsible Investment
grida.no) of all tailings dams to be set up, of human rights risk. This was con- a Brazilian listed portfolio company, a assessed to be highest among these in Agriculture and Food Systems”
to be used by communities, governments, firmed in the conclusions from the dialogue is underway via the AP Funds’ countries. standard as a governing document
civil society organisations and investors. proactive process for risk identification Council on Ethics. Investments in agricultural real estate and require these principles to be
Letters were sent to 680 mining and risk assessment (p. 14), where risks This report provides an update on take place through jointly-owned com- implemented by the managers. These
companies, calling for them to publish identified for this sector include forced how AP2 works proactively with its panies with other investors that share principles were developed through an
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industry initiative in which both AP2 processes. The analysis included best 3. A set of performance indicators –
and Nuveen were part of the working practice from, among others, the This component translates data
group. Since 2014, the principles have OECD-FAO Guidance for Responsible into meaningful KPIs to measure
been administered by the UN-sup- Agricultural Supply Chains, the IFC the operators’ and the portfolio’s
ported organisation PRI (Principles for Guidelines, the EU Taxonomy for agri- progress from year to year. These
Responsible Investment). The principles, culture, and Leading Harvest. KPIs will be linked to the UN
which include respect for the environ- The framework measures the Sustainable Development Goals.
ment, good working conditions, application and performance of
human rights, respect for land and sustainable agricultural practices in 11 All farms and tenants have
ownership rights and business ethics, categories. These categories concern undergone external audits during
address serious risks within the the impact of agriculture on people audits conducted in 2015 and 2018.
agricultural sector. and the environment and cover the In 2019, third-party audits were
sustainability issues most relevant to conducted for 30 per cent of the farms
Further development of the process stakeholders. Information on in Brazil, in accordance with the new
for sustainability work agriculture is structured on the basis of audit plan. The plan is to continue to
In 2019, Nuveen began to develop its three components: perform external audits in a three-
existing ESG measurement process year cycle going forward. This means
into a comprehensive framework for 1. Code of conduct – Implemented that all agricultural activities will
follow-up in order to measure and as a self-assessment tool, this undergo an external audit every three
evaluate sustainability work in agricul- component enables agricultural years. In the 2019 audit, Westchester
ture. The framework will support the contractors and tenants to
identify which sustainable
collaborated with IMAFLORA, the Leading Harvest
definition and follow-up of objectives, Institute for Agricultural and Forestry
benchmarking, improvement work and farming practices they Management and Certification. The Westchester is one of the founders of Leading Harvest, a non-profit
communication to investors and stake- implement, and to follow up and audit showed improved results and organization promoting sustainable agriculture. It was launched in the USA
holders. report on progress. compliance for all of the agricultural in April 2020 in collaboration with investors, managers, landowners,
The framework will be implemented 2. Farm profile – This component activities audited. conservationists and farmers. Leading Harvest defines sustainable
in 2021 and combines knowledge from collects quantitative data and agriculture practices based on 13 principles, 13 goals, 33 performance
measures and 71 indicators. These include methods for conserving land,
internal and external resources. Nuveen inputs and outputs related to the
water resources and biodiversity, as well as the well-being of employees and
has partnered with a global business farm’s geographical,
local communities. More information is available at www.leadingharvest.org
risk and sustainability solutions com- environmental, infrastructure and
pany to conduct a gap analysis of the socioeconomic aspects.
existing sustainability target follow-up
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