Stockholm (NordSIP) – In the annual update to its exclusions, Sweden’s public pension fund AP7 has added 35 new companies to the list of companies it is unwilling to invest due to climate or human rights concerns.
“We need more tools to manage risks that are becoming increasingly complex and unpredictable. In addition, we want to be able to allocate more resources to the opportunities that exist,” says Johan Florén, Head of Communications at AP7.
Prominent New Exclusions
AP7’s exclusions have been guided by the Paris Agreement since 2017. Given the recent ESG push-back, AP7 argues that “the world has become more conflict-ridden and unpredictable. This brings new sustainability challenges for both investments and ownership engagement.” The basis for the decisions is a comprehensive risk assessment that includes both investment and governance opportunities related to climate change and human rights violations.
AP7 did not publish a rationale for each of the 35 new companies excluded. However, five names stand out. Among the companies added to the exclusion list due to environmental/climate concerns, two oil companies, Brazil’s Petrobras and France’s TotalEnergies, have recently been in the news.
Petrobras, the state-owned Brazilian oil company, was recently in the news during the coverage of COP30. At that time, the praise the company might have received for its provision of renewable energy to the conference of the parties was undermined by the fact that the Brazilian government granted Petrobras a licence to drill for oil in Amazon region.
TotalEnergies is France’s largest energy company and has been at the centre of several controversies, recently. It was found guilty of engaging in greenwashing and was ordered to review the claims it made regarding the positive climate impact of its initiatives. It was also one of only two European companies accused of having allegedly engaged in a concerted effort to undermine the EU’s Corporate Sustainability Due Diligence Directive (CSDDD).
Three companies were added to AP7’s exclusions list due to human rights/labour rights concerns. Although the Swedish pension fund is not bound to follow the recommendations of Etikrådet, the Swedish Council on Ethics, considering its arguments about some of these companies can be illuminating as to the concerns a Swedish public institution might have.
Bharat Electronics Ltd is an Indian public sector aerospace and defence electronics company, headquartered in Bangalore. Etikrådet recommended in October 2024 that the AP funds 1 through 4 exclude Bharat Electronics because it has been a supplier “to Myanmar’s military both before and after the military coup in 2021. Myanmar’s military is assessed by several sources to have committed human rights abuses against the civilian population both before and after the coup.” In Etikrådet’s view, this relationship contributes “to human rights violations according to principle 2 of the UN Global Compact and chapter IV of the OECD Guidelines for Multinational Enterprises.”
LIG Nex1 is a South Korean aerospace and arms manufacturer, including cluster munitions, a type of explosive weapon that releases smaller submunitions. Cluster munitions have a tendency to not explode on impact, laying around until after the conflict and killing and maiming civilians thereafter, similarly to what can happen with landmines. As a result, they have been almost unanimously banned under the Convention on Cluster Munitions (CCM). “The Council on Ethics therefore recommends that the company LIG Nex1 Co., Ltd. be excluded because they produce cluster munitions and are thus considered to be in violation of the Convention on Cluster Munitions,” Etikrådet argues.
The ICL Group is a multi-national manufacturing concern headquartered in Tel Aviv that develops, produces and markets fertilisers, metals and other special-purpose chemical products. Back in August, the ICL group was one of the Israeli companies that NordSIP mentioned as potentially controversial in the context of the Gaza conflict. In the past, the company has been the subject of some controversy for its historical role as a supplier of white phosphorus to the US Army for use in projectiles, some of which were deployed by the Israeli military in Gaza. This being said, no reference to the ICL Group appears to have been made by Etikrådet thus far.
Exclusions Criteria and Application
According to AP7, norm-based exclusions, focusing on human rights, labour rights, environment, corruption, will be implemented gradually over the coming years. Initially, the focus will be on risks of human rights violations in conflict areas, after which it will be broadened to other issues.
For companies with significant climate impact, a stricter selection will mean that more companies are excluded and resources are concentrated on fewer companies with greater transition potential. This improves the conditions for a more active management model in the internal transition portfolio developed during the year.
Oil companies with significant climate impact are defined as companies that produce at least 50 million barrels of oil per year, derive at least 50% of their revenues from production and/or exploration of oil or gas, derive at least 5% of their revenues from oil sands, or derive at least 5% of their revenues from Arctic oil extraction
Coal companies with significant climate impact are defined as companies that produce at least 5 million tonnes of thermal coal per year, derive at least 25% of their revenues from the extraction and production of thermal coal, or have at least 5 GWh of installed capacity for electricity production from thermal coal
