Two different paths to sustainability? A comparison of a Finnish and a Swedish public pension reserve fund
Date | 01 September 2021 |
DOI | 10.1177/13882627211036473 |
Author | Niko Väänänen |
Published date | 01 September 2021 |
Subject Matter | Articles |
Two different paths to
sustainability? A comparison
of a Finnish and a Swedish
public pension reserve fund
Niko Väänänen
Université Catholique de Louvain, Louvain-la-Neuve, Belgium
Abstract
Theroleplayedbyfinance in allocating resources has become crucial in modern economies.
Responsible Investing, i.e., the integration of non-financial criteria (such as environmental,
social, and governance (ESG), negative/positive screening, and active ownership) into the
investment process, has gained an important role. Does this apply to pension funds, too?
This article compares two public pension reserve funds, one from Finland and one from
Sweden, and describes their path towards responsible investments. The article shows that
although having taken different paths, responsible investing has been clearly integrated into
the investment process of both funds during the last decades. In Finland, the role played by
pension fund insiders has been remarkable. In Sweden, legislators have played an active and
significant role in the process. The design of the pension system equally plays an important
role in the overall process. In Sweden, cooperation is promoted in responsible investments.
In Finland, pension system design fosters competition, thereby reducing cooperation in invest-
ments. This article adds more information on the scarce comparative research on public pen-
sion reserve funds.
Introduction
Theroleplayedbyfinance in allocating resources has become crucial in modern economies.
In recent decades, non-financial concerns have gained importance in investme nt decisions.
The aim of this comparative article is to investigate different paths to responsible
investment policies. We study two public pension funds: (1) Keva, a Finnish pension
Corresponding author:
Niko Väänänen, Université Catholique de Louvain, Louvain-la-Neuve, Belgium.
E-mail: niko.vaananen@student.uclouvain.be
Article
European Journal of Social Security
2021, Vol. 23(3) 298–317
© The Author(s) 2021
Article reuse guidelines:
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DOI: 10.1177/13882627211036473
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fund of the public-sector pension scheme; and (2) fjärde AP-fonden (or, as typically
abbreviated, AP4
1
), a Swedish pension reserve fund of the general pension scheme. The
funds were selected based on the typical case-study method (Seawright and Gerring, 2008:
299-300). Keva and AP4 are both reserve funds and t heir sizes, measured as assets under man-
agement, are relatively equal. Both funds are a representative case of a fund operating in the
public pension system of each country.
The guiding idea, which has led the research, was to investigate the role of institutions and, more
precisely, their roles in the development of sustainable investments of public pension reserve funds
(PRFs). The article adds more information on the scarce comparative research on public pension
reserve funds, which are colloquially known as ‘buffer funds’. As a rule, unlike private pension provi-
ders, PRFs do not fall under either the Institutions for Occupational Retirement Provision (IORP) II or
Solvency II directives of the European Union (EU). Instead, PRFs are regulated by national legislation.
2
Pension funds are large investors who, according to the financial logic, primarily seek the highest
returns on their investments. In recent decades, the financial logic has been complemented by an
increasing emphasis on the social goals of investments (Yan et al., 2019). Sandberg (2017) has
argued that pension funds, due to their intergenerational nature, should take an active role in safe-
guarding the interests of future generations and fragile stakeholders, as they have enormous influ-
ence on societies. Because of their nature, pension funds must consider the interests of people of
different ages. If a pension fund is overly short-term oriented, it may favour older beneficiaries
over younger ones (Johnson and de Graaf, 2009).
One way to consider the interests of future generations is through responsible investing (RI).
Typically, RI is understood as an approach in which criteria other than directly financial ones
are integrated into the investment process (Sandberg et al., 2009: 153). Nowadays, it is widely
understood that these non-financial factors can influence the long-term profit-making potential of
firms. RI is a phenomenon that takes a different shape across countries and jurisdictions. In the
case of public pension funds, the most important non-financial factors integrated into the investment
process are domestic ones. It is pertinent to study large public pension funds because public pension
funds have been found to be most likely to engage in responsible investment, while larger funds
(measured by assets, staff, and participants) more often have responsible investment strategies in
comparison with smaller ones (Sievänen et al., 2012). Public pension funds have a long history
in RI: their managers were among the first to apply environmental, social, and governance
(ESG) screening on investment choices (Munnell and Sundén, 2005).
The countries for this article were chosen because they provide for a good comparative setting:
in Sweden, the practice of responsible investment is more established than in Finland, where it has
become more common only in the last decades. Scholtens and Sievänen (2013: 609) point out that
socially responsible investments (SRIs) started in Sweden in the 1960s, but Finland saw its first SRI
activity in 1999. Therefore, compared with Sweden, Finland does not have a long tradition in the
field of responsible investments. The methodological approach is that of a qualitative comparative
case study. Most of the data were gathered from previous studies and publicly available
1. AP is shortened from allmänna pension, which would translate to ‘general pension’. The complete Swedish name, fjärde
allmänna pensionfonden, would literally translate to ‘fourth general pension fund’.
2. It should be noted that Finnish private-sector pension providers are equally exempt from Solvency II and IORP II regula-
tions for the statutory pension they offer. However, the private-sector funds must follow other relevant EU legislation,
such as laws on competition and investments.
Väänänen 299
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