Among the 22 largest pension funds in Denmark, more than DKK 600 million (ca. EUR 80 million) is invested in government bonds from sub-Saharan countries where corruption and oppression of the population by the authorities is not unusual. PenSam, Unipension, Industriens Pension, PFA, PBU – the pedagogues' pension fund – and ISP are responsible for the majority of the investments, a new survey by DanWatch and Berlingske shows.

Countries such as Angola, Gabon, DR Congo and several others are often considered high-yield countries because investments in their government bonds carry higher risks than investments in more stable countries. On the other hand, the returns are also higher.

The countries are regarded as heavily corrupted by Transparency International, which annually estimates the level of corruption in all countries of the world. In several of these countries fundamental rights are systematically ignored.

Leaving the decisions to the politicians

Many of the Danish pension funds have joined the UN Global Compact, which focuses on such things as human rights and anti-corruption, and boasts policies on social responsibility regarding investments in companies. The same is far from the case when it comes to investments in countries.

”The ethical guidelines that apply to investments in corporations cannot be applied directly to government bonds. The rule is that we do not buy government bonds in countries subject to a ban. Should the EU or Denmark decide to impose sanctions against a country we have invested in, then we will comply with these. To the extent that this entails a ban on investments in government bonds, we will not invest in that country in the future,” Ulla Bendiktson, Director of Management Support at PenSam, explains.

PenSam has investments totalling nearly DKK 100 million (EUR 13 million) in Angola, DR Congo, Gabon, Nigeria, Senegal and Uganda, all of which score low on Transparency International's corruption perception index. In addition to this, Angola, DR Congo and Gabon are deemed not free according to Freedom House's freedom index, meaning that fundamental political and civil rights are considered non-existent in these countries.

A dilemma

Like PenSam, the pension funds Nordea Liv og Pension and PFA reply that it is impossible to use the same policies on ethical investments when investing in government bonds as when investing in companies. Furthermore, the pension funds point out that, in contrast to investments in companies, it is impossible to practice active ownership since government bonds are loans to a country.

”It is worth noting that there are no voting rights attached to government bonds, and that active ownership therefore is not really possible, as is the case when we have shares in a private company,” says Anders Schelde, Chief Investment Officer at Nordea Liv og Pension and continues:

“It is obvious that should the hypothetical situation arise in which we had invested in the government bonds of a country, and this country were in the spotlight for human rights or similar violations – without being subject to an embargo - then we would be in a dilemma. It is a constant dilemma, which we and other players experience, how one best addresses such a situation.”

Pension funds have responsibilities

Mads Øvlisen, Chairman of the Danish Council on Corporate Social Responsibility, is surprised that the pension funds have no guidelines for investments in government bonds, as they have for investments in shares.

“We all know there are problems in these countries. Therefore it surprises me that the pension funds aren't more transparent and explain what they have done to ensure that the money ends up building the country rather than ending up in the wrong pockets,” he says to Berlingske.

Sune Skadegaard Thorsen, CEO of GLOBAL CSR, which consults companies about social responsibility, believes that pension funds cannot completely shrug off the ethical responsibilities for their investments.

“According to the UN's new Guiding Principles on Business and Human Rights, social responsibility also includes states. Companies must assess all the ways in which their operations can affect human rights negatively and react if they are directly or indirectly responsible for such violations. This also applies to companies that have not joined the UN Global Compact, both when it comes to human rights and anti-corruption,” he says and continues:

“It is profoundly relevant to look at the companies' social responsibilities in relation to states – and not just in relation to other companies, as has been the case so far. It is a new and not quite simple area.”

Tighten up

The Danish Consumer Council, too, is skeptical about the Danish pension funds' lack of ethical commitments in connection with government bonds.

“DanWatch's survey points to a deplorable hole in the financial companies' policies on ethical investments. Because, logically speaking, there is no reason to adopt different ethical measuring sticks when buying government bonds than when buying corporate bonds,” says Vagn Jelsøe, Policy Director at the Danish Consumer Council, and continues:

“One can only hope that the survey prompts companies to tighten up in this area and specify their ethical guidelines and procedures, so one can have a clean conscience. It might not be easy – but that's one of the reasons why we leave our savings to professional investors.”

Minister for Development Cooperation worried

Minister for Development Cooperation Christian Friis Bach worries about where the pension money ends up. He says to Berlingske:

“If the pension funds can't ensure openness about these cash-flows, so you can see where the money ends, and if they can't ensure that the money is, in fact, used for the population's benefit, then I think one should seriously consider staying away.” According to the development minister, the Ministry of Foreign Affairs would not give similar budget aid to several of these countries.

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