ESG is deeply rooted in the Nordic soil and makes the region an appealing market for international investors. Here are the key drivers for ESG in the Nordics.
There are many good qualities one could use to describe Nordic societies: equality, a high level of education, strong social support, high trust in government, openness, love for nature, and an innovative mindset are some that come to mind.
These qualities are also why Finland, Sweden, Denmark, and Norway often place highest in various responsibility rankings, such as Robeco’s Country Sustainability Ranking where they form the top 4 in this order. One could argue that ESG (environmental, social, and governance) is part of the Nordic DNA – and something that is deeply rooted in the investment landscape, too.
The owner base of Nordic equities drives ESG
The Nordics were the forerunners of ESG decades before the term “ESG” was ever coined. While the Americans claim that responsible investing was born in the US in the 1970’s or 1980’s, the Nordic investors incorporated responsibility in their investments as early as the 1960s; a Swedish fund company founded an explicitly ethical investment fund already in 1965.
From the Nordic perspective, responsible and “traditional” investing are not separate, but ESG is a key driver in long-lasting value creation. The driving force for this attitude are the largest owner groups of Nordic equities: households, wealthy families, pension funds, and states. Moreover, we can see a notable shift in all these groups, wherein investors are changing from shareholders to stakeholders and stewards of wealth.
Households are becoming more knowledgeable about ESG issues and increasingly aware of their power as consumers and investors. Younger investors tend to be more purpose-driven, and especially women have taken up investing in the past years, often wanting their investments to do good in addition to creating value.
Wealthy families are among the most influential investors in the Nordics. When their wealth is transferred to the younger generations, also the investment goals shift from pure profit to purpose.
Pension funds are the forerunners in ESG, as they are obliged to invest sustainably. For example, Norway’s Government Pension Fund, one of the largest state-owned funds in the world, aims to be net zero by 2050, pushing the companies in its portfolio to do the same.
Governments are also significant stakeholders in many prominent Nordic companies, especially in the industrial, material, and energy sectors, which are essential for mitigating climate change. For example, Finland aims to be net zero by 2035, encouraging Finnish companies to adopt the ambitious goal.
The Nordics are fertile ground for innovation
The Nordic corporate environment is also favorable for innovations. The culture of cooperation and a high education level enable innovation at both established companies and start-ups.
While we’ve discussed the Nordics as a whole, it’s good to remember that each country has its specializations and strongest sectors: energy in Norway, materials technology in Finland, industrial in Sweden, and healthcare in Denmark. These sectors are also important from the ESG viewpoint and fertile ground for innovation – think renewables, bio-based materials, and digital solutions.
The ESG emphasis is also visible in investments in start-ups. In the Nordics, 35% of all venture capital investments are targeted at impact start-ups, while in the rest of Europe, the number is only 22%.
Diversity and children’s rights matter to Nordic investors
While environmental topics have been the key themes for investors over the last years, we can spot at least three major current trends in responsible investing.
First, while the Nordics are among the most equal societies in the world, the numbers of men and women in leadership positions are still very different, and investors are paying close attention to diversity and equality in the companies they invest in. Second, eradicating modern slavery is high on the Nordic investor’s agenda, not only in distant countries but also in Europe.
The third and most recent topic is children’s rights. Traditionally, children are mentioned only in human rights and child labour discussions, but the awareness has increased among Nordic investors in recent years. It is now widely recognized that children are an important stakeholder group regardless of the company’s business or operating area. However, the challenge is integrating children-related metrics into investment processes, so dialogue between investors, companies, and organizations such as Unicef is needed.
These drivers and trends require us asset managers to integrate ESG into all investment activities. They also make the Nordics an appealing sector for international investors. Evli’s Nordic offering is an excellent way to become part of the Nordic ESG investing landscape.