Alecta pension star Anna Magnusson: ‘Governance is not a sprint’

Within the Swedish pension fund space, Anna Magnusson is going places. The 44-year old lawyer is seen as somewhat of a rising star, a name to keep an eye on. 

Only last week it was announced that the current head of corporate governance at the £100bn pension giant Alecta will be joining the established pension fund Första AP-fonden (AP1) on 1 June, as chief active ownership officer. 

A much-talked about move within Nordics pensions, particularly since Alecta made headlines in recent weeks for losing around $1bn after the collapse of the Silicon Valley Bank (SVB) and the Signature financial institution in the U.S.

Before joining Alecta, Magnusson held several senior roles within the Government of Sweden, including head of sustainability and corporate governance issues at several state-owned enterprises.

Net Zero Investor caught up with Magnusson to hear what she makes of current sustainability reporting standards and frameworks, her speciality, and the green finance challenges many pension funds and other asset owners face in Sweden and across Europe.

Congrats on your new role. Now let's talk sustainability standards and reporting. What would you say is the biggest ESG challenge currently for asset owners and managers?

From a broad perspective Europe is facing a terrible war in Ukraine that is causing human suffering and threatening growth, prosperity, and cohesion within the EU. The climate crisis of course, and that we are facing an energy crisis that probably will force us to slow down the transition on some fronts, [as well as] the high inflation. 

If I focus on the challenges we see with current sustainability standards for reporting, I would say that the current large number of different standards are for no good neither for the companies nor for us investors. Bureaucracy and reporting for the sake of reporting are not helpful, in fact quite the opposite. 

One purpose of the standards is transparency which enables comparability for different kinds of stakeholders. The numerous different standards make comparability difficult and we risk to missing our target. Having said that, I believe that standard regulation for reporting is positive. We need to consolidate and find a minimum standard that is applicable to all companies with requirements that are relevant and on a reasonable level. It is also extremely important that the reporting is based on reliable data.

At Alecta, you were, well still are, responsible for all the work on governance, nomination committees and voting policy. How challenging is your job in the current ESG climate?

I can see an increased complexity. Investors and stakeholders are using their voices in different ways. I am concerned about the “ESG backlash” blaming ESG and sustainable investments for everything, from being the driver of inflation to simply being positioned as “woke”. This is according to us far from the truth. 

I take great comfort in the fact that long-term value creation is fundamental for all Alecta's activities. Our investments and our active ownership are based on a fundamental analysis of the companies which of course includes consideration of ESG aspects to assess our companies’ potential for value creation. You can’t be loved by all. We are well founded in our decisions, and proud of our investment policy.

Many pension funds and investors increasingly demand more detailed ESG data, so they can understand and monitor sustainability efforts better. Do you recognize that trend?

Oh yes! The reporting requirements on ourselves are also increasing. We need more reliable data that can be measured and compared over time, but we do need to be mindful of relevance and not reporting for the sake of reporting. If we do this right I think it is the right way to go. With reliable data it will be possible for us as well as the companies we invest in to monitor and understand sustainable risks and opportunities even better and to forecast outcomes and the path to reach long-term targets.

I think it is important to mention the ongoing discussion here in the Nordics regarding whether companies should include ESG-matrix as performance criteria in their remuneration programs. As you know, the development towards that has been faster in the US and we can now see that it becomes more and more common even in Europe and the Nordics. At the same time, it is not our impression that the Nordic companies have been lagging regarding ESG performance in comparison to their US peers so far, on the contrary rather. 

From Alecta’s side we are definitely positive to include ESG metrics if they are relevant to a company’s strategy and long-term financial growth, and currently we have a dialogue with the chair in some of our companies on the matter. The purpose of incentives in remuneration programs is to influence and reward the right behaviors and to do so it is really important that the metrics you use, both financial and non-financial, respond to those behaviors. 

Reliable data is a prerequisite also for this purpose. It is important, and for me a given, to integrate ESG throughout companies to ensure sustainable value creation, and I see great value in keeping up the dialogue and keep on exploring the possibilities to ensure that ESG is clearly reflected in the remuneration programs.

Earlier this year, the boss of Aviva Investors has warned companies not to sacrifice long-term sustainability goals in response to near-term challenges posed by energy shocks, supply chain disruption, elevated inflation and the risk of recession. Do you share that sentiment?

I agree and refer to what our CEO used to say. It is crucial in these challenging times to still be able to think long-term. We need to secure access to substantially larger volumes of sustainable electricity to implement the climate transition, at the same time as there are still much more efficiency gains to be made. This requires investments in technology and capacity right now, in order to have an effect over the next 10-20 years.

However, there are no doubts in our minds that the transition to a low-carbon economy needs to accelerate. Data is constantly improving and we do have critical mass, and the companies in our portfolio have set targets. Hence, it is time to move from words to action. This is where we will put our focus the coming years: Do the companies have credible plans to meet their targets? If so, are they equipped to execute them? If they are equipped to execute them, are they working toward them diligently?

Also, he said the industry's focus should be on the transition to a low-carbon economy and reversing nature loss. Are those key priorities for Alecta too?

Alecta strives for low carbon economy by measuring our own portfolio emissions and expects our investments to do the same. We are a founding member of the Net Zero Asset Owner Alliance, and as such, we follow our portfolio companies journeys closely with 5-year interim targets. I want to emphasize that our portfolio does not matter in the greater scheme of things. 

The changes we in the Alliance make must have an impact on the real economy. It does not suffice to wash our own portfolios of emissions. The job is bigger than that. When it comes to loss of biodiversity, the data is still scarce among the companies and there is a lot of good work coming out following the meeting in Canada last year. So, we are following the development with great interest.

Many pension funds and investors increasingly demand more detailed ESG data, so they can understand and monitor sustainability efforts better. Do you recognize that trend?

Oh yes! The reporting requirements on ourselves are also increasing. We need more reliable data that can be measured and compared over time, but we do need to be mindful of relevance and not reporting for the sake of reporting. If we do this right I think it is the right way to go. With reliable data it will be possible for us as well as the companies we invest in to monitor and understand sustainable risks and opportunities even better and to forecast outcomes and the path to reach long-term targets.

Finally, let's briefly zoom in on impact investing. How much attention would you say Alecta and the industry pay to this?

Alecta has an appetite for it. We see impact investments as an opportunity and we have expressed that we have an interest in doing more, when we find the right match with our portfolio and investment criteria. When we do impact investments, such as green bonds, we do them on the same premises of long-term value creation as when we do other investments. 

For us, impact investments are something positive, but the definitions of what should be classified as an impact investment need to mature. I think the ongoing debates on greenwashing are helpful and important to sort out what we mean when we talk about impact investments.