Meetings between rival Nordic fund selectors are typically exercises in discretion and caution. No one wants to mention the talented fund manager they’ve found in case a competitor tries to snap them up. And no one wants to give away a killer investment tip.
There is, however, one subject that unites even the fiercest of rivals: ESG
“We all care about the climate and social governance,” says Folksam head of fund selection Susanne Bolin-Gärtner, about the Nordic fund industry. “ESG criteria is something we all have in common. You can have very fruitful discussions on the subject. We’re nerds on ESG.
“I’m far more likely to attend a conference or event if the debate is focused on ESG.”
Nordic countries have, of course, long been at the forefront of the environmental and social governance (ESG) movement. The Norwegian government’s pension fund led the way in the 1960s with its mission to invest the country’s oil wealth for the next generation, encouraging a socially-responsible investment philosophy. Sweden’s progressive politics, meanwhile, have ensured sustainability is at the top of the country’s agenda.
But, Bolin-Gärtner says there has been a noticeable change in attitude towards ESG investing over the last couple of years in the Nordics – as well as across the world. “Fund managers that used to hate ESG now see it as a priority and way to generate more alpha,” she says.
The catalyst for the shift in attitude was the introduction of the United Nations Sustainable Development Goals (SDG) in 2016, Bolin-Gärtner says.
The SDGs set out targets covering a broad range of social and economic development issues – including poverty, hunger, health, education, climate change, gender equality, water, sanitation, energy, urbanisation, environment and social justice – that it hopes all countries, both developed and developing, will achieve by 2030.
“People have talked out socially-responsible investing for some time. But the big change was when the UN’s sustainable development goals were set up for governments and countries to follow,” Bolin-Gärtner says.
The UN-supported Principles for Responsible Investment, for example, provide investors with a framework for implementing ESG integration techniques into a wide range of investment processes – including quantitative, smart beta and passive.
“All of a sudden everyone was talking about how to implement these goals into funds and investments,” she adds. “That was when it all came to life.”
A changing industry
Bolin-Gärtner oversees about 70 externally-manged funds (which cover about €15bn in unit-linked insurance). The funds include equity, fixed income and multi-asset and index trackers and Folksam’s selection process places ever-increasing importance on the sustainability of the funds’ investments – as well as core performance measure such as risk adjusted returns. It needs a safe and steady pair of hands. Folksam, one of Sweden’s biggest insurers, has a focus on long-term pension plans.
“When a fund is not performing anymore we take it off our platform,” Bolin-Gärtner continues. “And we make sure that any fund we replace it with has a totally integrated ESG process.”
The industry is changing. Among fixed income and equity funds that identify as ESG, about two thirds rank as ‘high’ or ‘above average’ according to Morningstar’s ESG rating (see charts).
Bolin-Gärtner says it is perfectly possible invest in a socially-responsible way – and increase performance over time. “If your investments are ethical – therefore excluding certain companies – it might cost you in the short term but over the longer term it might actually benefit the fund, as certain investments lose or gain value as attitudes change,” she says citing the example of how attitudes towards certain products – such as tobacco, alcohol, sugar, fast food, guns and third-world sweatshops – have changed quickly.
“This new focus on ESG has meant I can have good dialogue with fund managers [about socially-responsible investing]. We have come quite far and have had some success in terms of investing in certain companies.”