Sustainability has become mandatory for investments by Nordic institutions
In April’s Nordea On Your Mind (‘Going Green and Coming Clean‘), we looked at sustainability in the corporate sector, estimating how much ESG failures have cost listed Nordic companies, noting that the extensive costs (16% of one year’s EBIT for the affected companies!) represent a strong commercial incentive to ensure corporate processes and governance that support a strong ESG performance. In this report, we review Nordic institutions, and find that 99% of Nordic institutional assets under management already incorporate some form of ESG policy.
Institutional ESG policies are seeing rising sophistication and levels of ambition
We have made an in-depth analysis of a sample of 63 Nordic institutions, which together represent EUR 2.8tn of AuM, categorising the ESG policy for each fund of every institution on a simple scale from 0 (no ESG policy) to 4 (positive and negative screening, and voting engagement). 47% of AuM falls under the most ambitious policy type, while only 4% is in the simplest (negative screening) category, and 1% has no ESG policy. In the past five years, the ambition level has grown only slightly for fixed income assets, having been overtaken by strong growth for equities.
It is no longer about ticking boxes or image, but about value creation (or avoiding value destruction)
As Nordea’s Global Co-Head of Corporate & Investment Banking Mathias Leijon describes in his introduction to this report, sustainability can be seen as an example of ‘creative destruction’, forcing the re-shaping of corporate business models, but also creating new opportunities and profit pools in the process. The messages from the speakers at Nordea’s sustainable finance conference in Stockholm on 22 September left no doubt that sustainability and ESG has entered the mainstream and is increasingly seen as a critical fundamental business issue. A strong historical focus on environmental issues in the region is evolving into a view of sustainability as a gauge of a business’ resilience to disruption from technological innovation, poor governance or changing consumer behaviour. Investors see sustainability as a must for a business to be able to thrive, or even to simply survive potential future shocks.
ESG plays a significant role in share price performance
In a Strategy & Quant report published on 5 September, Nordea equity analysts Elias Porse and Hugo Fredriksson concluded that ESG matters greatly for both the operational and share price performance of Nordic companies. Relative performance between top and bottom ESG performers differed by as much as 40% in 2012-15, and they proved no correlation between ESG and other quant factors, meaning a combined investment strategy of going for quality and high ESG scores can deliver strong outperformance compared with the broader stock market.
Shared insights: Interviews with Fidelity, Storebrand and Nordea’s analysts
In this edition of Nordea on Your Mind, we interview Paras Anand, Chief Investment Officer, Equities, Europe at Fidelity International, on how sustainability features in investment decisions and decides the future for companies. Jan Erik Saugestad, CEO of Storebrand Investment Management, describes his institution’s journey from being a very early ESG pioneer to a current award-winner and world player in the field, and how all investing might be sustainable in the future. From Nordea, Elias Porse and Hugo Fredriksson share the key findings from their ESG-themed Strategy & Quant report mentioned above.
Nordea Bank | Markets | Equities
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