Using Sustainability to Lever Long-Term Returns

    Stockholm (NordSIP) – Boasting more than four million customers, Swedbank Robur is a household name in Sweden. So far, the asset manager has been best known for its plain vanilla mutual funds. This might, however, be about to change. Earlier this year, Robur announced the launch of an alternative investment product, to invest in unlisted Swedish and Nordic companies. Swedbank Robur Alternative Equity I, an Article 8 fund according to the SFDR, reflects the asset manager’s ambition to create a sustainable, long-term return for investors while contributing to the development of society and the environment. NordSIP reached out to the fund’s portfolio managers, Henrik Lundh and Patrik Westerberg, to hear more about the new venture.

    The rationale

    “Given Robur’s vision to be a world leader in sustainable value creation, launching the Alternative Equity fund is a logical and long-term strategic step,” asserts Lundh, Head of Alternative Investments at Swedbank Robur. “A large part of corporate value is being created outside of listed markets, for many good reasons. Several of our investment themes, such as transformational company development, digitalisation, disruptions, and the transition to net-zero business models, are, in fact, prevalent in the unlisted space. Now, we have a product that can tap into this pool, a dedicated set-up for our professional customers to invest in unlisted illiquid equity with a long-term holding period.”

    Apart from the demand from investors, Lundh tells us that Robur is often approached by companies that seek a stable and long-term investor, a responsible owner that can support and push them in a positive direction. “For many years now, we have seen interest from companies and co-owners to have Robur funds as direct investors in private assets,” he adds.

    Funding change

    Since its launch, the fund has already made three high-profile investments, Northvolt, Instabox and H2 Green Steel. “In all our first investments, sustainability analysis was an important part of our investment assessment,” explains Westerberg. “More importantly, in all three investments, environmental and social sustainability factors are actual drivers of competitive positions and long-term value creation.”

    The portfolio managers seem confident in the sustainability credentials of each of the investments. “Northvolt was founded to develop the world’s greenest battery cell and to establish a European supply of batteries to enable the future of energy,” elaborates Westberg. “The environmental aspects of its products are an important part of its differentiation. Instabox provides the most efficient and environmentally friendly last-mile delivery option. H2 Green Steel’s purpose is to accelerate the decarbonisation of heavy industries using green hydrogen. The company is starting with steel, benefiting from green price premia on its end products, in addition to highly efficient production.”

    Disrupting the status quo

    According to the managers, such sustainability qualities and management focus in corporates are means to improve long-term competitive advantages. They can be powerful levers for pricing power and long-term cost competitiveness. They are often part of disruptive business models and offerings, one of several elements of the fund’s investment philosophy.

    “All three companies we have invested in so far are disruptive, each in its own way,” says Westerberg. “Sustainability is seen as a competitive advantage and leveraged to create value over the long term. Circular thinking as well is present in all three companies. Recycling materials is explicitly a part of both Northvolt’s and H2 Green Steel’s strategy. Meanwhile, Instabox is enabling consumer-to-consumer deliveries, facilitating the circulation of pre-loved goods,” he adds.

    Always on the lookout for new ideas

    “Sourcing investments is a continuous, multi-year job. We are working with several different channels,” shares Lundh. “Apart from proactive analysis, we rely also on relationship-driven idea generation. Ultimately, it is a reputation business. More ideas flow in as we get to be increasingly better known by companies and potential co-owners as a go-to investor, based on what value we can offer as co-owners, and how we are to work with,” he adds.

    “For most portfolio companies, in my experience, sustainability factors are in some form part of the total value creation,” shares the portfolio manager. “In some cases, it is a way to enable companies to beat the competition, in others – to provide what I call structural and transformational value creation, and in all – to secure the companies’ long-term position. I have also witnessed the competitive force of a value-driven yet fully commercial corporate culture and tone from the top, plus its positive effects on code of conduct risks. This is consistent with how we think and do things at Swedbank Robur and with our goal to maximise risk-adjusted returns for our investors,” concludes Lundh.

    Image courtesy of Swedbank Robur
    Julia Axelsson, CAIA
    Julia Axelsson, CAIA
    Julia has accumulated experience in asset management for more than 20 years in Stockholm and Beijing, in portfolio management, asset allocation, fund selection and risk management. In December 2020, she completed a program in Sustainability Studies at the University of Linköping. Julia speaks Mandarin, Bulgarian, Hindi, Russian, Swedish, Urdu and English. She holds a Master in Indology from Sofia University and has completed studies in Economics at both Stockholm University and Stockholm School of Economics.

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