Sweden is inviting international asset managers to help allocate 1 trillion kronor (€88bn) of pension savings, but says it won't accept applications from firms that don't incorporate ESG into their strategies.
The new framework will replace a system tainted by an embezzlement scandal that infuriated Swedish taxpayers and triggered calls for a more robust setup.
The upshot is that only investment firms that integrate environmental, social and governance goals into their work need apply, according to the Office of the Swedish Fund Selection Agency, which is overseeing the process.
"Unlike in the current system, there will be a requirement that the manager systematically integrates sustainability aspects into its operations," Erik Fransson, executive director of the office, said.
The move underscores the wildly divergent approaches different jurisdictions are taking as they figure out how big a role ESG should play in mainstream investing.
In Europe, ESG is currently being hardwired into financial regulations.
In the US, lawmakers just voted to block the pension industry from taking ESG risks into account.
The decision only affects pensions under the state's control.
Sweden's private pensions market has made headlines after it emerged that Alecta, which oversees more than €93bn in retirement savings, was the fourth-biggest shareholder of the now collapsed Silicon Valley Bank.