Is Sustainable Investing Leadership Moving South?

Stockholm (NordSIP) – We are back from the Sustainable Investment Forum Europe that took place in Paris this week. Our mission at the forum, organised by Climate Action in partnership with the United Nations Environment Programme Finance Initiative (UNEP FI), was to extract the specific and concrete takeaways for participants. A few themes stuck out from the comments we obtained.

In general, it has become difficult for SRI-related conferences, summits or forums to impress seasoned participants with anything new. Nevertheless, we did get the sense that, even if somewhat intangibly, delegates are seeing the industry progress in the right direction.

For Nordic investors in particular, coming to Paris is a symbolic step and poses an almost existential question: “Has the centre of leadership for sustainable investing really moved south?” The Nordic countries have always been seen as precursors when it comes to environmental questions, but also in the other dimensions of sustainability, such as gender equality or governance. From the perspective of the investment sector, a large part of the movement has always been voluntary. In contrast, in reaction to the Paris agreement in 2015, France has set up rules such as the famous Article 173, which makes carbon reporting mandatory for investors. The European Commission is driving the agenda further with the action plan unveiled last week. These types of initiatives are concrete and positive steps most of the industry participants, even if the more sceptical among them believe it is not enough. For some, there is no viable solution short of an actual price on carbon. Until now, it is obvious that governments are not yet on board for such a drastic move.

We identified two distinct currents amongst investors at the conference. On the one hand, there is the optimistic yet realistic idea that Rome was not built in one day. The Swedish pension fund AP4 was one of the precursors in building more sustainable indices by eliminating exposure to carbon while retaining the same index exposure as the market. This sort of exclusion methodology has caught on, and many institutions now integrate the same technique.

But how is that going to change the world? argue the second group. Sitting on the podium next to AP4 CEO Niklas Ekvall was Frédéric Samara of Amundi Asset Management, who answered that changes need to happen incrementally and that something is better than nothing. Meanwhile, more cynical investors believe that there is no time to waste in waiting for such incremental changes to take effect. There is also a real risk that institutions will receive too much credit for these types of initiatives, and such relatively small-step solutions actually contribute to stalling efforts instead of instilling the necessary sense of urgency.

In this context, regulation is seen as a real positive by most participants. Whether it is a carbon tax, or a disclosure requirement, forcing financial markets to do something sets the industry in motion, and heightens the sense of alert. The question is: will the Nordics become followers, or will they pick up the baton and lead on the terrain of sustainability again? We asked some Nordic participants whether they think it even matters, and for some, it didn’t. One Nordic investor told us that, as long as progress is happening somewhere, the Nordics may as well lose their relative edge.