European asset managers competing for a share of a 1 trillion Swedish kronor (€87 billion) pension mandate must prove full ESG-integration to be in with a chance of succeeding.

Sweden is encouraging fund managers to come forward to assist it in allocating the pot, which represents just over 10% of Sweden’s total public retirement assets.

However authorities stress that firms must fully incorporate ESG into their strategies and processes, or else their application will not be accepted.

The Office of the Swedish Fund Selection Agency is overseeing the process in a bid to replace an existing system that found itself at the centre of an embezzlement scandal, and subsequent outrage from Swedish taxpayers.

Erik Fransson, executive director of the agency, said: “Unlike the current system, there will be a requirement that the manager systematically integrates sustainability into its operations.”

Sweden’s rules for this particular mandate will require fund managers to adhere to the United Nations’ Global Compact, the OECD guidelines for multinational corporations, or the UN’s guiding principles for human rights.

Furthermore, firms will only be allowed to offer investment products that are registered as ESG fund classes under Europe’s Sustainable Finance Disclosure Regulations, known as Article 8 and Article 9 funds.

It is expected that the Swedish Fund Selection Agency will conduct its first selection process in the second quarter, choosing a total of around 150 funds.

The rebooting of the fund selection process comes after the so-called Falcon Funds scandal. This involved the defrauding of roughly 20,000 Swedish pension savers and resulting in fines and prison sentences for six of the people involved in the investment scam.

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