Shifting Mindsets to a Sustainable Long Term

    Stockholm (NordSIP) – “The long-term sustainability goals are due to be reached soon.” With these words, Anita Lindberg, Chair of Sweden’s Sustainable Investment Forum (Swesif), opened the release seminar on the academic report “Long-Term Perspectives in Investment Analysis”, a collaboration between Swesif and the researchers Hanna Setterberg, PhD (Pictured), Emma Sjöström, PhD and Gregor Vulturius, MSc at the Stockholm Sustainable Finance Centre (SSFC).

    In the report, a study by Aviva Investors is quoted showing that “only 12 per cent of mainstream financial analysts’ time is spent researching companies’ prospects beyond a 12-month horizon”, a discouraging fact, when we need markets to focus on sustainability goals.

    To function smoothly and cater to the needs of companies, investors and society, financial markets need a mix of actors with different time horizons. However, as stated in the report, “when short-term priorities hinder long-term value creation, or when long-term risk is overlooked due to an excessive focus on short-term horizons, then we have a problem”.

    Focus on sustainable investments and ESG-measures requires a long-term horizon. In order to counter the trend towards increased short-sightedness of markets, Swesif initiated a project on long-termism about two years ago. ”Setterberg, Sjöström, and Vulturius have been working on the project together with Swesif over the past year. The study included interviews and workshops, as well as a survey among buy-side analysts, sell-side analysts, and IR officers.”

    The survey included questions about how often the respondents raised or received questions about long-term and ESG-issues, the definition of long-term, what the obstacles are to an increased long-term horizon, and views on who should be the drivers of more long-termism in financial markets et cetera.

    Setterberg and Sjöström, who presented the report, pointed to several questions that the survey exposed and stressed the need for discussions between sell-side analysts, buy-side analysts/portfolio managers and investor relations officers.

    The results of the study showed that the view of what long-term is doesn’t differ much between buy-side and sell-side analysts. IR-officers have a somewhat longer time horizon. Both types of analysts said that they to a large extent ask questions to companies about long-term issues once a week or once a month whereas IR-officers perceive that they are being asked these types of questions once a month or once a quarter.

    When it comes to corporate communication, IR-officers believe that their companies to a large or very large extent include long-term issues into their story of value creation and disclosure. Sell-side analysts are of the same view. Buy-side analysts do not fully agree.

    In total, differences in the view of what is important and needs to be done are not gigantic but perceptions, interpretations and expectations differ and there is clearly a need for increased communication around these matters. The Swesif seminar was very interactive. Setterberg and Sjöström let participants answer the survey questions and the discussion around the answers and other related issues was lively and engaged. One question that led to the active discussion was that of “Who should promote more long-term analysis? Respondents of the survey thought that this responsibility should be rather evenly distributed between buy-side, sell-side, investor relations, regulators and media. Seminar participants leaned towards the view that buy-side/investors have the greater opportunity and responsibility to influence development since they, as clients, can demand change from the sell-side. Investors can also take the lead and integrate hard ESG-numbers in their investment process by starting with the relatively easier ones such as CO2-footprint. “Investors need to become more demanding”, as one participant exclaimed.

    Even if most seminar participants viewed the buy-side as having the most power to drive change, the general opinion was also that there is a need for all actor categories to contribute; buy-side, sell-side, regulators, investor relations officers and media.

    The survey pointed to a number of important insights, but also lifted the need for further research, better communication and dedication. Setterberg and Sjöström pointed out and described a couple of potential future research projects, which could lead to new ideas for how we can integrate sustainability in investment management at increased speed.

    Lindberg summarized the seminar in a number of steps that could be the focus going forward for the Swesif project of long-termism:

    • Collaboration with companies and the IR community to ramp up the long-term conversation
    • Create principles of best practice between buy-side and sell-side analysts
    • ESG-training of the financial community at large
    • “Take the elephants and make them fly”. For example, the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), Lindberg explained, is by many perceived as too big and complicated, and not always actionable

    Picture © NordSIP

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