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.