According to OP and Nordea, responsible funds may also include companies that are on their way to becoming fossil-free, for example.
To be responsible profiled funds or funds focused on a specific theme such as climate change mitigation have grown in popularity among both large institutional investors and small investors.
But is everything really as green and responsible as the names and descriptions of the funds suggest?
HS went through the so-called responsible funds of Osuuspankki and Nordea and their ten largest holdings at the beginning of June.
OP-Climate, OP-Sustainable World, OP-Clean Water and OP-Low-Carbon World were included in the review. Nordea’s Global Stars, Emerging Stars, European Stars and Climate and Environment were examined by Nordea.
Nordea has 100,000 Finnish investors in these funds, and according to the bank, approximately EUR 270 million has flowed into them over the past five years. Nordea’s Climate and Environment has been the most popular of these funds, not only in Finland but also more widely in Europe.
The popularity of climate change-focused funds is also reflected in OP, where OP Climate is currently the bank’s second most popular fund. OP-Climate’s size is EUR 10 million.
HS: n The CEO and environmental activist of Third Rock Finland, which does corporate responsibility work, got acquainted with the funds Leo Stranius and a private investor holding a Financial Peace of Mind podcast Jasmin Hamid. Both have also represented the Greens in the Helsinki City Council.
According to Stranius, the companies in the funds can be divided into three baskets. The investment targets in the first basket are actively involved in resolving, for example, a natural loss or a climate crisis.
In the second basket are neutral entities, like many service or IT companies. In the third basket, then, are downright harmful companies that use fossil fuels or child labor, for example.
“Yes, these responsible funds have all those companies in the third basket.”
According to Stranius, examples of such companies are Alibaba, a Chinese e-commerce company in Nordea’s star funds, or Lloyds, a British bank that still invests in fossil fuels. Alibaba got the spring Fines from the Chinese authorities years of abuse of a dominant position. Lloyds was also recently fined heavily misleading insurance customers.
“Although in the case of Alibaba, one may ask what the angle of responsibility is.”
According to Stranius and Hamid, one may wonder how an “eco-friendly” online store is an environmentally friendly or responsible choice.
From OP Starinius highlights companies like Amazon.com and Facebook, for example, where you can at least think about social responsibility issues.
Hamid’s eyebrows are also rising for food giant Nestle and Sberbank of Russia, which can be found in Nordea’s funds. From a sustainability perspective, for example, Nestle’s palm oil production and Sberbank of Russia’s close connection to the Russian administration are problematic.
With the exception of individual companies, both Hamid and Stranius view bank funds as largely positive. Stranius considers Nordea’s Environment and Climate Fund to be “credible” and is pleased that companies that are less familiar to the general public have also been included. OP-Puhdas Vesi, which focuses on OP’s water solutions, also receives praise from Stranius.
Hamid says that he is positively surprised, especially about OP’s funds.
“It seems that private investors are, in vain, slandering banks for green money laundering.”
According to Hamid, it is good that responsible funds are available to private investors, because not everyone has the time or the desire to familiarize themselves with corporate responsibility.
Nordea Funds managing director Henrika Vikman says that Nordea’s responsible funds may currently include companies that do not have the best possible level of responsibility. Vikman says that the development in them is also positive.
“We see, for example, that Alibaba is doing a lot of positive things in terms of social responsibility, for example, when it comes to employee rights. The company’s governance may not be at the best level yet, but change is taking place. ”
Nordea uses the bank’s own process to assess corporate responsibility. In star funds, all invested companies undergo an analyst liability assessment, in which companies are placed in Class A, B or C. In category A, all aspects of responsibility have been well taken into account, in category B there may be shortcomings in some areas of responsibility, but the development must be positive. Class C companies are completely excluded from star funds.
According to Vikman, the aim is to find companies in the Climate and Environment Fund that enable change with, for example, renewable energy solutions.
According to Vikman, the British bank Lloyds is part of Nordea’s banking investments, and Nordea does not invest directly in Lloyds’ funds. Vikman says that Nordea is currently in dialogue with the bank and sees that Lloyds is on the right track in environmental matters as well.
“Rather, we look at that journey towards the goals of the Paris Climate Agreement and fossil freedom.”
In the case of the Russian bank Sberbank of Russia, it is important to note with Vikman that Sberbank is the largest retail bank in Russia and the only bank available to citizens in many parts of the country.
“Without it [Sberbank of Russiaa] millions of Russians would not have access to basic banking services, payroll accounts, housing finance and so on. Sberbank is a good example of the need to balance different elements in assessing sustainability. ”
“Rather, we look at that journey to the goals of the Paris Climate Agreement.” –Henrika Vikman
Vikman admits that for Nestle, the use of palm oil has been difficult from an environmental point of view. Nordea has responded by engaging in an intensive dialogue with the company, which, according to Vikman, has already led to positive developments.
“As a result of the discussions, Nestle can already say where and how the palm oil was produced.”
OP: n portfolio manager Kristiina Vares-Wartiovaara says that responsibility is closely linked to all the bank’s investment activities.
OP uses ESG responsibility assessment as part of its investment processes in selecting companies. The bank also excludes from its funds companies that violate international standards or whose turnover is more than 25 percent related to coal production.
The abbreviation ESG comes from the English words environment (environment), social responsibility (social) and good governance (governance). In ESG integration, the investor incorporates the ESG criteria into his or her other investment selection criteria.
According to Vares-Wartiovaara, OP also actively participates in general meetings, for example by proxy voting at meetings of foreign companies. In proxy voting, voting instructions are provided to general meetings, and voting does not require attendance at the meeting.
According to Vares-Wartiovaara, OP-Climate and OP-Clean Water, the OP funds examined in this case, are those for which companies offering solutions specifically are sought.
“Even in these funds, emissions are only allowed to a very limited extent. Coal, oil and gas may only account for less than half of the company’s turnover and the company must have a plan to move away from fossil production in order to be in the portfolios of these thematic funds. “
OP also emphasizes the company’s shift away from fossil fuels.
“A good example is LG Chem, which offers battery technology and is one of the largest battery producers in the world. The company is undergoing a really rapid transition away from fossils. It has not frozen in place. ”
The battery company is involved in the OP Climate Fund.
Companies that use and produce fossil fuels are completely excluded from OP’s Low Carbon World and Sustainable World funds.
“From the OP Sustainable World Fund, we exclude widely controversial industries – practically anything we can.”
June In the first half of the year, the OP-Climate Fund’s largest holding was the car manufacturer Volkswagen. The company’s share of the fund was five percent at the beginning of June. At the end of June, Volkswagen was no longer among the fund’s largest holdings.
According to Vares-Wartiovaara, Volkswagen played a major role in the fund due to the company’s plans for electric cars and greener battery technology.
“After Tesla, Volkswagen has one of the largest investment programs in electric cars in the world. Much of that work is not yet visible to consumers, but we want to support this process. ”
According to Vares-Wartiovaara, for example, in MSCI ratings, Volkswagen is still penalized for international violations committed in 2015. The company then lied about the emissions from its cars. Vares-Wartiovaara sees that the carmaker has learned from the incident and turned its sled, so it can be included in the portfolio.
Tesla is also funded by OP, but to a lesser extent today. According to Vares-Wartiovaara, Tesla is astronomically expensive.
“Volkswagen’s prices make more sense.”
Jasmin Hamid understands well why environmental funds must also include car companies, for example, and why responsible investment emphasizes the company’s direction in the future.
“It may be a preconceived notion that environmental funds only have wind power companies, but these funds are a good illustration of the scale of the impact on environmental change.”
There must be companies from every sector, Hamid says. He himself invests with the so-called best in class tactic, which selects the best companies from each sector, for example, in the ESG listings.
“Today, it is understood that there are other options than just washing your hands and walking away.” – Anna Hyrske
“It feels silly to shut down energy or mining companies, for example, when I use electricity and mining products myself.”
Responsible funds expert Anna Hyrske The Bank of Finland is also of the opinion that there should also be a willingness to invest in so-called brown companies, because otherwise they will not have the capital to make the transition to a green company.
“Nowadays, it is understood that there are other options than just washing your hands and walking away,” Hyrske says.
“Is it better to have invested in an energy company, for example, which now has high emissions but is able, as an owner, to influence the company’s move towards greener energy? However, everyone needs energy. ”
According to Hyrske, it cannot be said that excluding companies would be a better way than effective ownership, or vice versa. It is positive that there are many ways.
According to Hyrske, responsible investment and interest in corporate responsibility have clearly spread from institutional investors to private investors. However, individual investors have less resources than large institutions to obtain information on the implementation of corporate responsibility.
“It is therefore important that these asset managers, for example, offer responsible funds, clearly communicate their fund companies and responsible investment practices. If, for example, it is said that we are in line with the Paris climate agreement, we must also be able to show it clearly. ”
Read more: A record flow of money into responsible funds: Is there a bubble in responsible investments?