Sustainability report

Sustainability is at the heart of our business
Owing to the very nature of our mission, sustainability has always been the essence of our business. Our overall objective is to contribute to sustainable economic development through participating in the financing of economically, environmentally and socially sound companies that have no or limited access to long-term financing in low- and middle-income countries.

Global trends and challenges
Despite the economic crisis, many of the countries we invest in continue to grow. For example, the crisis has not hit Africa (where we have a rather high weighting in our portfolio) as hard as it has North America, Europe and parts of Asia. Still we experience that our role as a financial institution with a focus on development is gaining importance. We are working intensively to finance sustainable companies that are integrated into local economies and that can continue to be a part of the growth and thus development in low- and middle-income countries.

We also see how sustainability is becoming increasingly important in these uncertain times. I am convinced that the current economic crisis, combined with a number of other global challenges, such as climate change and poverty, will make reporting sustainability aspects of our activities much more relevant. It is therefore significant that we are now able to present Swedfund’s first sustainability report based on the international Global Reporting Initiative (GRI) framework.

In 2008 we took a number of climate initiatives. We were engaged in a climate project aiming at identifying environmental technology firms as possible future investment partners. In addition, three of our new investments in 2008 were environment related. We also continued our work in setting environmental requirements for new investments and followed up these requirements in our current portfolio. All Swedfund’s investments are to be made in accordance with our Environmental Policy and Code of Best Practice (ethical and social aspects), which are based on EU, UN, ILO, OECD and World Bank standards and conventions.

Moreover, in 2008 we launched a project aimed at creating understanding for how we can invest in post-conflict countries. We also made a decision to invest in a hospital in Iraq.

We note that the focus areas mentioned above such as climate and post-conflict nations enhance our contribution to development in countries in great need of such initiatives.

An investment process designed for development effects
In the planning of and decisions on investments, the development effects are given priority. We define development effects as the long-term effects of economic, environmental and social performance by our portfolio companies.

Development effects are direct and indirect. Swedfund believes that the economic value generated and distributed by our portfolio companies is one of the major direct development effects of Swedfund’s activities.
For next year’s report we will try to compile on an aggregated level the economic value generated and distributed by our portfolio companies (direct investments). This is in line with a survey we made last year, which showed that our stakeholders give reporting on economic performance top priority.

Indirect development effects are knock-on-effects of our investments. Such effects could be a general increase in economic activity in the region or country as a consequence of the original investment. Indirect effects are hard to measure but nevertheless particularly important for development.

We are stepping up efforts to analyse the development effects of our investments. One such measure was the introduction in 2007 of a procedure by which development effects of investment proposals are reviewed by a special Peer Review Group. We will continue our efforts to analyse systematically and if possible also quantify indirect development effects.

Successes and shortfalls
Let me mention that in 2007 all our portfolio companies stated that they paid wages in accordance with or above minimum national wage levels. None of them stated that they had employees under the age of 15.

90 per cent of our portfolio companies have employees with rights to establish and join unions and 77 per cent have the right to engage in collective bargaining. The main reason for non-compliance is that national laws do not authorise collective bargaining or that there are no or few labour unions operating in the country.

Swedfund engages in dialogues with portfolio companies that do not yet comply with our policies. We believe that our ability to influence is much greater through active engagement than by walking away.

Working and reporting on sustainability is a process
We welcome this opportunity to report on how we view sustainability, work with our stakeholders, integrate sustainability in our investment process and how we make sure the operations of our portfolio companies meet our requirements.

Working on sustainability is an ongoing process. I am looking forward to reporting on the progress I am certain we will have made in the coming years.

Björn Blomberg

Managing Director