Stockholm (NordSIP) – A new report by Denominator, a New York-based global data provider focused on human capital, analyses how 25 Nordic pension funds, with over US$3 trillion in assets under management (AUM), are grappling with human capital management.
The report covers Akademiker Pension, Storebrand, Varma, Ilmarinen, Danica Pension, PFA, ATP, Denmark’s AP Pension, Sweden’s AP1-4 funds, PBU, Sampension, Velliv, among others. “We are encouraged by the growing number of pension funds contributing to the baseline for an industry benchmark. It’s great to see the sector coming together to promote transparency and drive meaningful action,” says Anders Rodenberg CEO of Denominator.
Moving beyond a singular focus on diversity, the study covers a broader spectrum of human capital performance than the previous two editions of the report by benchmarking companies against bottom-quartile performers relative to their country peers and weighs. The findings underscore a significant, albeit evolving, challenge whereby a substantial portion of investments remains exposed to companies with demonstrably weaker human capital practices, despite growing awareness. These shortcomings pose potential risks to long-term value creation.
“We have a long-held view that a focus on maximising people value could generate stronger investment returns – by improving the human capital value in those investments, benchmarked against a clear baseline. Denominator’s approach allows a pension fund to assess material risks and opportunities, and to compile a clear and measurable plan of action,” Karen Shackleton, Pensions for Purpose Director and chair of the board
While all funds showed some level of investment in underperforming companies, there was some heterogeneity. While Finland and Sweden show the least exposure to bottom-quartile performers across four out of five human capital metrics (gender, race/ethnicity, age, education, disability), Danish pension funds exhibited the highest overall exposure, with gender being the sole exception. Intriguingly, executive management teams displayed nearly double the exposure to cognitive diversity underperformers (5.7%) compared to boards (3.0%), suggesting an uneven focus on different leadership tiers.
A particular area of concern highlighted by Denominator’s report is the representation of women in leadership. The report reveals a staggering US$ 380 billion (11.6% of total capital) is invested in companies lacking a single woman on their board and/or executive management. On average, women hold 35.5% of board positions but only.
“Executive management has less cognitive diversity”, the report argues. On average, women represent only 25.5% of executive roles for the sample. Finland has the most exposure on race/ethnicity with 32.7% for board of directors and 35.1% for executive management, while Sweden has the least exposure with respectively 21.3% and 23.2%.
Moreover, a substantial 246% difference was observed between the best and worst-performing funds in their exposure to companies without women in executive leadership. This disparity highlights the fact that targeted investment strategies can significantly mitigate these disparities.
Beyond leadership, employee turnover emerged as a crucial diagnostic for company culture and risk. The study found a notable 27.2% difference in exposure to bottom-quartile turnover between the best and worst-performing funds, underscoring the financial implications of high attrition. In terms of social commitment, policies like LGBTQ+ Support Initiatives, Human Rights Policy, and Paid Parental Leave are widely adopted (over 90% presence). However, crucial aspects such as Commitment to Living Wage (29.9%) and Equal Parental Leave (21.0%) remain less common, suggesting that while some commitments are early-stage, there’s still considerable room for improvement in fostering equitable and supportive work environments.
