Sustainability

FTN's mission is to procure funds for the Premium pension fund platform, which is part of the public pension system within the framework of the Swedish social security system. This means that FTN sets specific requirements in its procurement processes to safeguard the interests of pension savers.

When FTN signs agreements with fund managers, these are for six years with the possibility of extension. It is therefore essential that the fund managers procured by FTN possess the necessary financial resources and can develop their operations over time, as well as fulfil their commitments outlined in the fund agreements.

The Law (2022:760) External link. on procurement of funds to the premium pension fund platform states that procured funds must be sustainable and that fund agreements must contain conditions stating that fund managers must manage the funds in an exemplary way in terms of sustainability through responsible investment and responsible ownership. FTN's starting point is that the sustainability requirements in a procurement cover both the fund's investments and the fund manager. In procurements, FTN examines whether the manager invests in certain types of activities, how well sustainability aspects are integrated into the fund manager's investment processes, how responsible ownership is practised and what resources the manager has dedicated to its sustainability work.

The mandatory sustainability requirements for each procurement can be found in the procurement documents “Grounds for exclusion and mandatory requirements” and in the description of what characterises a high-quality fund in the various sections of the tender documentation and in the fund agreement.

FTN's view of sustainability is based international agreements

The Law (2022:760 ) on procurement of funds to the premium pension fund platform states that FTN shall procure high-quality sustainable funds, and that the fund manager shall comply with the provisions of international agreements entered into by Sweden concerning sustainability issues.

While there is no clear definition of what constitutes a sustainable fund, market practice has developed, though, among other things, the EU's various sustainability regulations aimed at the capital market (such as the Disclosure Regulation - SFDR, the Taxonomy Regulation, CSRD, and CSDDD) on what, for an asset owner or asset manager, constitutes compliance with international agreements relating to sustainability issues.

The EU regulations are based on the UN's definition of sustainable development as expressed in the Bruntland Commission's report from 1987 External link..

"Sustainable development is a development meeting the needs of the present without compromising the ability of future generations to meet their own needs"

This definition has been operationalised and clarified over the years by:
The 10 principles of the UN Global Compact External link. (GC)
The UN Guiding Principles on Business and Human Rights External link. (UNGP) and
The OECD Guidelines for Multinational Enterprises External link.

These initiatives, conventions, and EU regulations guide how companies and financial market participants should act for their operations to be considered sustainable. These include requirements to respect human and labour rights, to protect the environment and climate, and to protect consumer interests, as well as to combat corruption in all its forms. The UN Conventions on the use of controversial weapons and the Paris Agreement are also agreements of particular importance in this context.

Together, these initiatives and conventions therefore form the basis for the sustainability requirements that FTN imposes on the funds it procures.

Exemplary management in terms of sustainability

FTN's mission is to procure high-quality, cost-efficient, sustainable, and controllable funds. The Law (2022:760 ) governing FTN's operations also stipulates that the fund agreements that FTN signs with fund managers must contain conditions stating that the funds must be managed in an exemplary manner in terms of sustainability through responsible investment and responsible ownership.

The six principles of the UN Principles for Responsible Investment (PRI) External link. and what constitutes observance of international agreements relating to sustainability issues are the starting point for the FTN's definition of mandatory sustainability requirements. The specific sustainability requirements are specified by FTN in each procurement.

For equity funds, high quality in terms of sustainability is characterised by the fund manager:

Identifying and assessing whether the operations in which the fund invests
»are associated with violations of any of the ten principles of the Global Compact, the UN Guiding Principles on Business and Human Rights (UNGPs), or the OECD Guidelines for Multinational Enterprises

»take action in line with the objectives of the Paris Agreement

Integrating these principles into its investment process

Acting in its capacity as an investor in case of identified violations

Not investing in businesses
»which are associated with serious violations of the Global Compact, the UNGPs, or the OECD Guidelines for Multinational Enterprises but have not taken adequate measures to prevent future serious violations and/or have not compensated third parties who have suffered serious harm from a violation that has been verified

»producing, stockpiling, trading, or using controversial weapons (anti-personnel landmines, cluster munitions, biological and chemical weapons, and nuclear weapons)

» where the production of tobacco and tobacco products represents more than 5% of turnover

»where the extraction or production of thermal coal or oil sands accounts for more than 5% of turnover

» where electricity generation through the combustion of thermal coal accounts for more than 5% of turnover

»which is subject to applicable EU or UN sanctions

FTN also imposes mandatory sustainability requirements on the fund manager who

» must be a signatory and comply with the UN Principles for Responsible Investment (PRI)

» not be domiciled in a country on the EU list of non-cooperative jurisdictions

» not be subject to EU or UN sanctions

» must adhere to the Principles of Shareholder Engagement

FTN's different roles in sustainability

In its procurement process, FTN reviews a funds' compliance with FTN’s mandatory sustainability requirements in investment processes and ownership. Based on the same requirements, FTN monitors the procured funds during the contract period.

FTN responds to referrals and consultations aimed at developing the regulatory framework relevant to FTN's operations. FTN also strives to increase the market's knowledge of FTN’s sustainability requirements. In parallel, FTN continuously trains its staff in the field of sustainability.