Annual Report 2024 KLP Group and KLPKLP Group and KLP

KLP’s principal product and core business is public-sector occupational pension provision. We aim to be a partner to Norwegian municipalities, county authorities, health trusts and companies with public-sector occupational pensions, for a sustainable transition. We aim to deliver secure pension savings and value-added services in a way that helps to achieve the ambition of the Paris Agreement and the UN’s Sustainable Development Goals. Overall, there are three aspects to our core business.

1. We ensure that each member receives the correct pension on time.
2. We enable individuals to make informed pension choices.
3. We generate returns through sound and effective management of the pension assets.

KLP has been doing this for its owners for 75 years, and we are looking ahead to the next 75 years.

As our customers with public-sector occupational pensions are also our owners, all wealth creation goes back to them. There are therefore overlapping interests between customers and owners, and the best interests of the customers are the guiding principles for the business. This sets us apart from other providers. Our members are employees of our customers with public-sector occupational pension schemes, and people who receive a pension from us.

KLP has five subsidiaries, which are organised as wholly-owned limited companies.

KLP Eiendom acquires, develops and manages KLP's property investments, as part of KLP's management of customers' pension assets. By achieving competitive returns on the property investments in a cost-effective way, the company contributes to lower pension costs for KLP’s customers with public-sector occupational pensions.

KLP Kapitalforvaltning specialises in securities management. By achieving competitive returns on the pension assets invested in securities in a cost-effective manner, the asset management company contributes to lower pension costs for KLP’s customers with public-sector occupational pensions. The company also provides external customers with the same type of securities management that KLP itself uses to manage pension assets in public-sector occupational pension schemes. Economies of scale in the mutual fund and savings market mean that increasing capital under management helps to keep KLP’s operating costs low. The company also contributes to lower costs for KLP’s customers with public-sector occupational pensions by transferring returns to KLP’s equity.

KLP Banken is KLP’s channel for loan financing to KLP’s owners and their employees. The loans are financed from the management of the pension funds for KLP, the bank's own lending on favourable terms, and deposit facilities that the bank offers to employers and their employees with a pension scheme in KLP. These forms of financing, especially loans financed from KLP's pension assets, enable KLP Banken to be a stable provider of financing to the public sector even when other market participants have problems and have to withdraw, as we saw during the financial crisis.

By achieving competitive returns on the pension assets which are invested in lending in a cost-effective manner, the bank contributes to lower pension costs for KLP’s owners. The bank also offers other products and services on competitive terms which create value for KLP’s customers with public-sector occupational pensions and for their employees. In this way, the company also contributes to lower costs for KLP’s owners by transferring returns to KLP’s equity.

KLP Skadeforsikring is a major player in the area of insurance to municipalities and to companies affiliated to the public sector, as well as members of the Group's pension schemes. The company was established to provide retail insurance to our customers with public-sector occupational pensions, in line with their obligations under the collective agreement. Over time, the company has become a total provider of insurance solutions in this market, where it is useful to KLP’s owners. The company also contributes to lower costs for KLP’s owners by transferring returns to KLP’s equity.

KLP Forsikringsservice sells services to pension funds providing public-sector occupational pensions.

The KLP Group has four main activities: pensions, investments, banking and non-life insurance. Each activity has its own value chain with links both upstream and downstream. The figure below illustrates the various value chains for the KLP Group as a whole, with the core activities in the middle of the value chain. Some links in the upstream and downstream value chains may be the same across core activities, and are therefore aggregated, such as IT providers. The same applies to the downstream value chain and customer link.

Our customers and owners – municipalities, county authorities, health trusts and undertakings with public-sector occupational pensions – are our most important stakeholders. One strength of the mutual ownership model is that the customers and owners are the same. So the needs of our owners and customers are always at the heart of our strategy and priorities.

KLP was established to meet its owners’ needs for public-sector occupational pensions, and this is our core product. KLP sets out to provide its owners and their employees with secure pension savings that contribute to sustainable development. The Group’s main goal is to be the best provider of public-sector occupational pensions. Our strategy for being the best in public-sector occupational pensions is to make it worthwhile for public-sector customers to have their pension scheme with us. Everything we do in the Group should contribute to this. The key sustainability topics also support this. We are the pension company for the Norwegian local government and healthcare sector – a profitable community.

KLP is the leading provider of public-sector occupational pensions and achieves economies of scale to benefit customers in the form of good management and high levels of service at competitive prices. To achieve this, we depend on our employees; we need committed people.

The priority areas are interconnected. The people in KLP are our most important resource if we are to achieve our objectives. Good management is essential if we are to provide customers with the lowest possible pension costs over time. It is also important to customers for us to have the lowest prices, in both the short and long term. With good management and the lowest prices, our customers will get the lowest pension costs. That means they will have more resources to devote to their own responsibilities, such as running schools, hospitals, nursing homes and kindergartens. We also aim to provide market-leading service. That means providing services that deliver high customer value, while maintaining efficient operations and decreasing operating costs.

To deliver on the goals of lowest price and best service, technology development is crucial to KLP. In recent years, we have invested heavily in new solutions that enable self-service and automation for those applying for and drawing pensions. We have also established an excellent pension calculator, which allows more and more members to calculate their expected pensions. With new digital solutions and communication, these calculations now take just seconds.

We aim to be among the leaders in sustainability in our industry. Our double materiality analysis, which you can read more about in section 3.3 “KLP’s material impacts, risks and opportunities – Double materiality analysis”, is the basis for setting sustainability targets in the corporate strategy. Providing public-sector occupational pensions is what we are here for, and our social responsibility is to do so in a sustainable way. The sustainability goals in the corporate strategy are included in the priority areas of good management, best service and committed people: 

• We aim to be a partner to the Norwegian local government and healthcare sector for a sustainable transition.  
• We aim to deliver secure pension savings and value-added services while helping to achieve the ambition in the Paris Agreement and the UN’s Sustainable Development Goals. 
• We aim to be a driver for a sustainable transition through our own operations. 

In section 3, Sustainability, we say more about how we work to achieve these sustainability goals.

KLP’s investment strategy is designed to deliver competitive returns over time and contribute to sustainable development. To support this objective, KLP has established the following general principles for the asset management strategy:

• A long-term investment perspective
• Diversified portfolios
• Focus on efficient markets and cost-effective management
• Risk management adapted to the company’s regulatory framework and financial obligations
• Responsible and sustainable investments

The principle of diversified portfolios means that KLP is invested in over 9,600 companies around the world, across most sectors and in both developed and emerging markets in order to spread the risk. KLP’s asset management strategy is to base its investments less on a short-term tactical market approach, and more on being able to harvest risk premiums in the market in the long term. KLP’s focus on cost-effective management means that our asset management in the liquid markets is mainly index-tracking.

The risk in fund management is adjusted to minimise the likelihood of the company failing to satisfy statutory solvency requirements. It is also important for us to maintain risk capacity over time to be able to harvest risk premiums in the various markets. Good financial strength through high buffer capital is therefore key to achieving the company’s goal of the lowest possible pension costs to our owners over time. This means that the company’s solvency is viewed in a longer-term perspective when determining the level of risk in its management of the pension assets. Through the year, risk is managed dynamically through a policy rule for handling large market movements.

If the value of the investments is to increase over time, the underlying economic activity must be responsible and sustainable. We therefore strive at all times for greater accountability in our investments and in the economy in order to reduce sustainability risk and to contribute to strong and effective capital markets. The work covers all sustainability topics. KLP constantly monitors its investments for serious and/or systematic violations of international norms and conventions published by the UN, ILO and OECD.

By being an active and committed owner, we seek to encourage companies to operate more sustainably, helping the world to achieve the global goals we have set together and the sustainability goals in KLP’s corporate strategy. KLP aims to align its investment portfolio with the ambitions in the Paris Agreement and to push companies to achieve the UN Sustainable Development Goals. In this work, we use four main tools: 

• We include sustainability factors and sustainability risk in investment analyses and decision-making at both portfolio and corporate levels.
• We work to influence companies, industries and markets to create sustainable value through active ownership, including through:
  • Dialogue with companies’ boards of directors and management; KLP is mainly a passive index-tracking investor, so in practice almost all company dialogue is concerned with sustainability.
  • Voting and support for shareholder proposals at general meetings
  • Participation in and influence over corporate bodies
  • Contributing to the development of industry and market standards and cooperating with other investors. 
• We exclude companies that violate our criteria and do not display any ability or willingness to change.
• We invest in solutions for a more sustainable society. 

Active ownership

Our active ownership is based on an assessment and prioritisation of how and in what areas it can have the greatest effect. With over 9,600 companies in our portfolio, we direct our efforts at selected companies based on the size of the ownership interest, the geographical location, the sector affiliation, the size of the company, the risk of violations, and the subject of the dialogue. The choice of topics and companies may also be event-driven, and we prioritise based on future risk related to sustainability issues. We also specialise in some topics, including human rights in war and conflict situations, and climate change.

In 2024, the priority topics included climate change in high-emission sectors, deforestation, aquaculture and mining, human rights in war and conflict situations, and corruption. See examples of our work later in this section.

We have expectation documents covering all sustainability topics, including human rights, labour rights, climate, nature and corruption. The expectation documents describe KLP’s expectations of companies in the investment portfolio related to the various topics and are the basis for our active ownership.

The general meeting is an important arena for dialogue between the company’s management and shareholders, and we actively exercise our voting rights, both in Norway and abroad. We support shareholder proposals that take companies in a more sustainable and responsible direction, whether in terms of greater gender equality, reducing pay gaps between genders or ethnic groups, strengthening privacy or increasing transparency about the company’s operations. The times when we do not support sustainability-related proposals are, for example, where the proposal seeks to micro-manage the company in an undesirable way or is tabled expressly to counter the company’s sustainability efforts.

The table below gives an overview of KLP’s active ownership through company dialogue and voting. It also provides details of exclusions from KLP’s investment portfolio.

See note 3 “Active ownership” for KLP’s product and behavior-based exclusion criteria.

In 2024, KLP worked on the following in relation to climate and nature:

• KLP has particularly prioritised monitoring of Equinor, Yara and agri-businesses.
• Restructuring plans: In 2024, KLP tightened the requirements for climate transition plans when purchasing bonds to be held to maturity. We have had dialogues with a number of companies to clarify KLP’s expectations for science-based restructuring plans. In 2023, KLP voted against the board of 46 companies in high-emission industries that were judged not to have satisfactory restructuring plans. By 2024, according to assessments made by the organisation Climate Action 100+, 15 of these had improved their strategies. During the year, we had or attempted to have conversations with the remaining companies, 17 of which were able to point to plans and ongoing processes aimed at improving their climate strategies. There were no Norwegian companies among the companies where we voted against the board according to KLP's criteria. Examples of companies that have been put on an observation list are Kikkoman, Bunge, Exxon Mobil, SAIC Motor, WH Group.
• Deforestation: The progress related to goals and strategies for managing deforestation has been less encouraging. KLP had or tried to make contact with 22 companies where we voted against the board in 2023. Only four of these were able to point to improvements recognised by the Forest500 initiative. A few others were still considered to have limited deforestation risk, and KLP voted against the board in 10 companies.
• Collaboration: KLP has been active in initiatives organised under Climate Action 100+, Nature Action 100 and PRI Spring, and supported initiatives organised by ChemSec (phasing out non-degradable chemicals) and FAIRR (environmental impact of cattle farming, and more sustainable protein production).
• Transparency and reporting The Australasian Centre for Corporate Responsibility (ACCR), together with KLP and another investor, put forward a shareholder proposal calling for greater transparency in Shell’s reporting of lobbying activities to authorities in countries where it operates. Shell quickly acknowledged that there was room for improvement and stated publicly that it would strengthen its reporting. On this basis, the Group has held a number of conversations with Shell with a view to clarifying the scope of Shell’s reporting commitments. The talks resulted in significant concrete commitments from Shell to greater transparency and further cooperation with ACCR on the next report. KLP supported shareholder proposals at Amazon for the company will publish its scope 3 greenhouse gas emissions. KLP also supported shareholder proposals relating to third-party audits of the working environment and transparency around the company’s lobbying activities.
• KLP has strengthened its commitment to companies within the metals and mining industry and in particular followed up on companies registered in China. Mining companies are at high risk of contributing to climate and environmental damage. We believe they should present relevant data for climate emissions and environmental impact, and a strong risk management framework. We have had or tried to make contact and enter into dialogue with a number of companies to discuss transparency and strategies related to climate and nature risk.

In 2024, KLP worked with the following on human and labour rights:

• In connection with legal proceedings against Lundin Energy, with which Aker BP merged in 2022, and their activities in South Sudan, Norwegian People’s Aid has asked Aker BP to explain its position and respond to the victims’ concerns. They also asked Aker BP to enter into dialogue with Ørron Energy (formerly Lundin Energy) and its shareholders on compensation to the victims if it should be convicted. KLP considers that this is in line with the Norwegian Transparency Act and the UN Guiding Principles on Business and Human Rights. We published our assessment and had discussions with Aker BP before the general meeting.
• Scrapping of ships: We are continuing our annual work on reviewing the NGO Shipbreaking Platform lists of ships being cut up in high-risk areas such as India, Pakistan and Bangladesh. Where we are invested, we follow up companies with questions about responsible scrapping policies and practices.
• The right to unionise: Together with other investors, we have sent letters to the management of Tesla on respect for labour rights and supported shareholder proposals to flag our expectations on the freedom to unionise to the board. Together with two groups of investors, we have sent several letters to Amazon’s board of directors on the company’s respect for labour rights. We have put forward shareholder proposals together with SHARE and about 20 other institutional shareholders. This work is ongoing. We have set out our expectations for Tesla and Amazon in the media.
• Human rights in war and conflict situations: Since the start of the Gaza war, we have followed up Cemex, Caterpillar and HP. After careful consideration, we decided in June to exclude Caterpillar from our investments. This is justified by unacceptable risk of the company contributing violations of human rights in war and conflict situations and breaches of international law in the occupied Palestinian territories.
• Labour rights: For several years, we have been in dialogue with Volkswagen about its operations in Xinjiang, China. The main issue is the company’s measures to avoid forced labour in its value chains, especially in the Xinjiang region. It recently emerged, that following significant pressure from investors, including KLP, the company has sold its business in the region. KLP supported several shareholder proposals at Walmart related to third-party audits of the working environment, establishing guidelines for a living wage and assessing how the company complies with its obligations related to human rights in its supply chains.
• Children’s rights: In collaboration with the Global Child Forum (GCF) and a number of Nordic investors (Swedbank, Danica Pension, SEB and others), we are following up on companies in the Food and Beverage and Information Technology and Telecommunications sectors on practices around the marketing of goods and services to children. KLP supported shareholder proposals at Mondelez International calling on the company to report targets for eradicating child labour in the cocoa supply chain. We also supported similar proposals related to child labour in supply chains at Tyson Foods, Ford Motor Company and General Motors.
• Human rights: KLP supported two shareholder proposals at the Danish company A.P. Moller-Maersk related to improving its human rights policies and standards, as well as better reporting on the company’s work on human rights risks.

In 2024, KLP worked with the following in good corporate governance:

• KLP continued its dialogue with several Norwegian companies (including Borregaard, Equinor and Kongsberg Automotive) on effective boards and directors’ fees.
• Gender balance: For several years, KLP has voted against the election of certain board members due to a lack of gender balance. KLP votes against board members if the gender balance does not meet our expectations. The demands we make depend on the market the company is in. We expect at least a 40 per cent gender balance in developed markets and at least one woman on the board in emerging markets. We find that regulatory requirements have a much greater effect in Asia than non-binding demands. We have highlighted this in dialogue with the authorities in Japan, Korea and Malaysia. KLP has sent letters to 28 companies in Japan and South Korea that still do not have a proper gender balance in their boards. In the letter, we have called for clear plans for efforts to increase the proportion of women on the board and in management.
• Independence: KLP has had several dialogues with companies in Singapore where we have raised our expectations for independence on the boards and the need for adequate control mechanisms to ensure that the directors safeguard the interests of all shareholders. Many Asian listed companies have controlling shareholders who are often family members and are heavily represented both in management and on the board of directors.
• Risks associated with AI: KLP supported shareholder proposals at Alphabet calling on the company to report on risks associated with AI-generated misinformation and disinformation.

The figure below describes the corporate governance function and the role of the various governing bodies in KLP.

To ensure that KLP delivers secure and competitive financial and insurance services to its customers, and to safeguard the company’s assets and values, a system of risk management and internal control has been established. The board determines a risk appetite, i.e. how much risk KLP will accept in order to achieve its goals and ambitions. Our values, code of conduct and social mission are key to this. By identifying and analysing relevant risks, the company can take effective measures to manage and control them. This is an ongoing process, and feeds into all decisions on significant changes in the business. 

The Norwegian Accounting Act lays down special requirements to report on the management of sustainability.

Sustainability is integrated into and aligned with the day-to-day division of roles and established strategy and management processes, including risk management. The overall guidelines adopted by the board determine how the Company should work on sustainability, taking account of our material impacts and opportunities in a satisfactory manner. An assessment of the company’s exposure to and management of sustainability risk is among the tasks handed down in the board instructions. Sustainability-related matters are included in the board’s annual cycle. The Policy for investment risk, the Policy for underwriting risk, and the Asset Management strategy are particularly relevant here The Policy for KLP as a responsible investor has been designed with both our impact and our risk in mind.

The CEO’s instructions include a duty to ensure that this policy is implemented, and to report to the board on compliance, risk and target attainment.

KLP’s work on significant sustainability issues and associated impacts, risks and opportunities is based on the targets in the corporate strategy. The targets are set out in the sustainability goals. Each goal has a dedicated owner in management (an executive vice president or the managing director of a subsidiary), who bears the ultimate responsibility for managing impacts, risks and opportunities. For a summary of the goals, see the overview of Policies under each ESRS topic.

The board adopts the sustainability strategy as an integral part of the corporate strategy. The goals are adopted by the individual goal owner but are presented to Group senior management for discussion. Group senior management receives quarterly reports on target attainment as part of the general scorecard reporting. The board is given a biannual briefing on target attainment.

Management is informed of the results of due diligence assessments and planned measures through appropriate forums, depending on the topic. Each year, the board discusses and adopts KLP's report on due diligence assessments (under the Transparency Act), which can be found here at klp.no. The same applies to KLP's report on gender equality, which can be found here at klp.no.

The statement on KLP’s compliance with the Norwegian Code of Practice for Corporate Governance (NUES) is given in an appendix.

The statements on due diligence assessments, and the report on gender equality are not part of the annual report and sustainability report and are reported separately.

KLP is exposed to different types of risk. As a financial group, underwriting risk, financial market risk, credit risk, liquidity risk and operational risk are particularly relevant. Sustainability risk is another relevant risk factor. KLP handles this risk factor as part of the risk factors listed above, and not as a separate area. Section 3 describes relevant risk factors related to sustainability.

This is the first year that KLP has been covered by the new rules for sustainability reporting, cf. Section 2-3 of the Accounting Act on the requirement to produce a sustainability report. The structure of the annual report and sustainability report has been amended to take account of the requirements of the legislation.

KLP is publishing a consolidated report for the KLP Group for the financial year 2024, as we have done on a voluntary basis in past years. Sustainability reporting is based on our double materiality analysis and covers the companies included in the consolidated financial statements: the KLP Banken Group, the KLP Eiendom Group, KLP Kapitalforvaltning and KLP Skadeforsikring. The reporting covers the main activities of the KLP Group (pensions, investments in securities and property, lending, and non-life insurance) and the principal upstream and downstream value chains, mainly our own operations, investments, suppliers and customers. See “Section 1.3 KLP Group - KLP’s value chains” for a more detailed description of these.

The basis for KLP’s sustainability strategy and reporting is a double materiality analysis; an analysis of how KLP affects sustainability concerns and is affected by sustainability concerns in terms of risks or opportunities for KLP’s operations. The figure below provides a summary of the sustainability issues judged to be material for the various activities in the KLP group. All of the impacts, risks and opportunities are covered by defined disclosure requirements in ESRS. A detailed description of each individual impact, risk and opportunity is given in the table below.

The sustainability goals included in KLP’s corporate strategy cover and are based on the significant topics with associated material impacts, risks and opportunities.

The sustainability objectives are further specified in goals, which are made up of short and long-term targets with associated KPIs and actions. These clarify the sustainability ambitions for the various activities in the Group. The topics covered by the goals broadly coincide with sustainability headings in the ESRS.

The goals have been defined in collaboration between different disciplines across the Group, based partly on input from stakeholders. Stakeholders have not generally been directly involved in defining the goals.

Follow-up of the goals follows the normal corporate governance process at KLP, and regular assessments are made to ensure that KLP has appropriate and sufficient measures in place. Our assessment is that KLP is well equipped to manage and leverage identified material impacts, risks and opportunities.

KLP has several Policies addressing sustainability issues and undertakes to manage material impacts, risks and opportunities. The table below provides an overview of the most important ones. Topic-specific Policies are also described in the section for each topic. In the table below, all references to notes relate to “Notes to the sustainability report”.