Richard Gröttheim is the Chief Executive Officer at AP Fonden 7 (AP7). He was previously Vice Chief Executive Officer and has been an Acting Chief Executive Officer. Gröttheim has held this post since April 2000. Prior to that, he was the Head of the Monetary and Foreign Exchange Policy department at the Swedish Central Bank. Gröttheim also served as the Chief Economist at the Swedish brokerage firm, Aragon Securities.
Christopher P. Skroupa: I understand about half of your investments are made in the U.S. How would you describe your approach to working with U.S. companies on ESG (environmental, social and governance) performance?
Richard Gröttheim: AP7 invests in companies globally and the underlying principles based on universally accepted norms on sustainable development, that guide our active ownership are the same everywhere. Therefore, the issues we engage on with U.S. companies are no different than issue we focus on with companies on other markets. However, the ways we engage can differ in different countries depending on different market conditions. For example, the U.S. was the first market we co-filed on shareholder resolutions at AGMs (annual general meetings).
Skroupa: Do you actively engage with companies on areas of ESG performance improvement? If so, please share how you go about the engagement process?
Gröttheim: Yes. We use all available tools to improve companies. Last year we voted on 98% of the companies we own, which amounted to almost 3000 meetings. We engage in dialogue with a few hundred companies per year when we have indications of norms-breaches with regards to human rights, corruption, climate and the environment. We also conduct thematic engagements with companies on selected focus issues. We co-file shareholder resolutions. We engage in securities class actions. We publicly blacklist companies involved in verified breaches of international norms. We seek to collaborate with like-minded investors as far as possible to pool our resources and gain traction. As a universal owner, the aim of our engagement is to influence norms and standards for the whole market. One example is our blacklisting of companies acting in breach of the Paris agreement. By integrating the Paris agreement and UNFCCC (United Nations Framework Convention on Climate Change) into our norms-based framework, AP7 attempts to pinpoint what is unacceptable corporate conduct. Thereby we contribute to the interpretation of the Paris agreement in terms of corporate responsibility.
Skroupa: To what extent would you engage in a proxy contest to drive change?
Gröttheim: AP7 has co-filed on several shareholder resolutions on ESG-issues in the U.S. and the U.K. A couple of weeks ago, we co-filed on a resolution at Rio Tinto’s AGM in Australia. The resolution asked Rio Tinto to disclose its relationship with lobby groups on climate change and report on how it intends to govern it’s political climate lobbying activities. We asked Rio Tinto to improve its reporting in line with best practice on the market. The Rio Tinto board recommended shareholders to vote against the resolution, but the proposal was nevertheless supported by almost a fifth of shareholders – including CalPERS and CalSTRS and other high-profile ESG investors. The resolution has resulted in Rio Tinto last minute improving it’s reporting on lobby group relationships. The process also shed light on the importance of the business community directly and indirectly through lobby groups supporting the implementation of goals in the Paris agreement. As a result we can expect more engagement from investors on this issue going forward. This illustrates the dual purpose of AP7’s engagement approach: not only influencing companies one at the time, but also driving norms and standards globally.
Skroupa: Have you exercised used class action litigation as a tool secure a settlement, assuming the engagement route proved out as unsuccessful?
Gröttheim: We use class action litigations as a separate tool, not directly as a consequence of our engagement process. AP7 engage in legal processes and securities class actions against companies that have treated their investors wrongfully. This may for example be that the company attempts to avoid a fall in share price by not providing investors with correct information. Most lawsuits are settled. The purpose of the legal processes is both to be compensated for any wrongdoing but also to discourage companies from causing ﬁnancial damage to their investors. A recent example is the Facebook litigation where AP7 was lead plaintiff. The litigation resulted in Facebook halting it’s plans to reclassify its stock in 2017, which would have cost public shareholders several billion dollars.
Richard Gröttheim will be speaking on a panel entitled Building the Investment Case: Building Off Established ESG Screening Platforms at the ESG Integration Summit in Stockholm, Sweden on September 20.
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