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Four Triodos IM Funds Available on Fondo

Stockholm (NordSIP) – In an effort to broaden the availability of its investment funds, Triodos Investment Management has made four Article 9 SFDR of its Impact Equities and Bonds funds available to Swedish retail investors via online fund platform Fondo. Triodos IM is a sustainable asset manager based in the Netherlands. As of March 27th, Triodos Pioneer Impact Fund (Z-cap), Triodos Future Generations Fund (Z-cap), Triodos Global Equities Impact Fund (Z-cap) and Triodos Euro Bond Impact Fund (Z-cap) can be bought through the Fondo platform. The funds have a focus on environmental and social change. “I’m excited that our funds are now available on the Fondo platform as it opens up the world of impact investing to Swedish retail investors. They now have the opportunity to actively contribute to much-needed transitions like the energy transition, the food transition or the resources transition through investments in the Triodos funds,” said Vuk Srdanovic, Investor Relations Manager Nordics at Triodos IM. Fondo is a Swedish fintech firm that operates as an independent fund platform, providing Swedish retail investors access to a wide range of funds. As the distribution is entirely without commissions from fund managers, Fondo’s extensive selection of funds is offered at the lowest fees possible. “We are pleased to welcome Triodos Investment Management to our platform. With the addition of Triodos’ four funds, we enhance our selection of ‘dark green’ funds, which is in high demand in the Nordics,” Olof Cristoferson, CEO at Fondo, concluded.

Alecta Executives and Board Not Personally Liable

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Stockholm (NordSIP) – 2023 was a difficult year for Alecta, Sweden’s largest pension fund. A number of bad investments and a controversial hire undermined the reputation of the pension fund. Now, an audit of the firm has cleared executives and board members of any personal liability in the troubles of the last year. Trouble at Alecta started brewing in the aftermath of the bankruptcy of Silicon Valley Bank (SVB) during the first quarter of 2023. Alecta reported an exposure to SVB of just under SEK9 billion, equivalent to 1.8% of its SEK500 billion equity portfolio at the time. There were concerns that Alecta’s investment strategy had failed and that the company had suffered from its inability to deal with the fact that its CIO, Henrik Gade Jepsen, had been on long term sick leave caused by complications from a Covid infection. These losses led to a number of changes at the top. First, on April 4th, Alecta’s Head of Equities, Liselott Ledin, was replaced by Ann Grevelius, the former CIO of SEB. By April 11th, it was the turn of CEO Magnus Billing to leave, replaced in June by Peder Hasslev. To turn a page, Alecta also hired Pablo Bernengo as its new CIO at the start of August, followed by the appointment of Magnus Tell as Head of Equities one month later. By October 2023, it was the turn of Alecta’s Board’s Chair, Ingrid Bonde, to leave, starting a search for a new Chairperson, which culminated in the hiring of Carina Akerstrom.  A month later, William McKechnie, general counsel and head of Legal, Purchasing and Sustainability was also let go. Meanwhile, trouble at home continued to cast a shadow on Alecta. During the years of low-interest rates following the Great Recession 2007-09, investors were forced to consider investment opportunities that had been heretofore unexplored. Real estate offered very appealing returns so many investors turned to this sector. Alecta was no exception and invested SEK49 billion (4% of Alecta’s total assets under management) in Heimstaden, a Nordic real estate company. However, with the rise of interest rates, since the start of the war in Ukraine and the associated rise in inflation, real estate companies which tend to be leveraged or exposed to indebted homeowners, found themselves struggling. By September 2023,  Alecta’s CEO noted that the return on these investments had stopped being competitive and the Swedish financial services authority, Finansinspektionen (FI), began investigating Alecta’s investments in Heimstaden. Media reports at the end of 2023 noted that several managers at Alecta responsible for investments in Heimstaden had subsequently been employed at the company. Alecta had to accept a 25% writedown in the value of its Heimstaden investment in the fourth quarter of 2023*. Alecta’s woes continued into 2024. At the beginning of March, newly appointed CEO, Carina Akerstrom resigned after less than a month in her role. Akerstrom’s hiring had already been preceded by some controversy. She was only selected after the previous choice, Lars Rohde, had to be abandoned due to having previously accepted a position that was incompatible with being Chair of the Board of Alecta. The announcement of the internal audit’s conclusion on personal liability for the losses experienced in 2023 was made on the occasion of the publication of Alecta’s 2023 Annual Report. In a February preview of 2023‘s results, Hasslev commented that “2023 was a very turbulent year that created a significant crisis of confidence for Alecta. We have implemented a number of measures, but are fully aware that it will take time and require hard work to regain the customers’ trust”.  
*See page 5 of Alecta’s 2023 Annual Report.

Passive Funds Accused of Greenwashing

Stockholm (NordSIP) – Investors in passive funds marketed as sustainable should be wary of inadvertently holding positions in fossil fuel companies that are actively expanding their output, according to a new report published on 20 March 2024 by Paris-based non-governmental organisation (NGO) Reclaim Finance.  Unmasking Greenwashing: A call to clean up passive funds lays out the results of the NGO’s analysis of the underlying holdings of 430 funds marketed in Europe by Amundi, BlackRock, DWS, Legal & General Investment Management (LGIM), and UBS AM.

Further research released on the same day by Carbon Tracker highlighted the oil and gas sector’s extremely poor record on the transition to low-carbon technologies, with many companies planning to increase production in the run-up to 2030.  It is the presence of the worst of these expansionist firms that Reclaim Finance believes is wholly incompatible with the sustainability claims of many passive funds.  Holdings data sourced from Morningstar revealed the presence of fossil fuel developers in 70% of the 430 funds under analysis.  These included oil and gas developers like ExxonMobil, TotalEnergies, and Shell as well coal developers such as Adani, Mitsubishi, and Glencore.  In total, Reclaim Finance identified 416 companies listed on the Global Coal Exit List (GCEL) or Global Oil and Gas Exit List (GOGEL),  two publicly available databases of expansionist fossil fuel companies maintained by Berlin-based non-profit Urgewald.

Regulatory failures and ESG blind spots

Many of the funds under analysis hold companies involved in fossil fuel expansion while stating compliance with Article 8 of the Sustainable Finance Disclosure Regulation (SFDR). Reclaim Finance blames the lack of effective fund classification in the EU market: “In Europe, the failure of the SFDR to provide robust categorisation revealed the need for minimal criteria on sustainability, pushing national regulators such as the French AMF to call for strong fossil fuel exclusions.”  While voluntary labels in France and Belgium currently exclude fossil fuel developers, the report seeks to highlight the failure of current EU-level regulations to clamp down on what it describes as greenwashing by passive fund providers.

Reclaim Finance believes that passive funds represent a blind spot in many large asset managers’ offering, with firm-wide sustainability policies often only applied to active strategies.  Moreover, it claims that the problem also stems from a reliance on external environmental, social, and governance (ESG) screened indexes that fail to screen out companies involved in fossil fuel expansion.  The report also highlights investments in fossil fuel sector bonds by passive fixed income or multi-asset funds, which have a direct impact on the capital available for these projects.  The NGO is calling on asset owners, managers, and regulators to tackle the misleading sustainability claims of these passive fund products.

Lara Cuvelier, the main author of the report said: “Asset managers are fuelling the climate crisis with their so called ‘sustainable’ passive funds.  While they are marketed as sustainable, these passive funds are invested in companies that are expanding fossil fuel production.  Even asset managers which claim to have climate policies are part of the problem as most don’t apply their policies to passive funds.”

Passive boom compounding the problem

The potential negative impact of greenwashing in passive funds is compounded by the rapidly growing popularity of such products worldwide.  Research quoted with the report shows a more $3 trillion shift from active to passive equity funds globally from 2006 to 2018.  More than two thirds of fund inflows in Europe during the third quarter of 2023 were in passive funds, with a high proportion of these labelled as sustainable.  US manager BlackRock, of the asset management firms under analysis in the Reclaim Finance report, has grown its ESG-related assets under management by 53% over the 2022-2023 period according to Morningstar direct data.  This unexpected growth has taken place despite the politically driven backlash in BlackRock’s home market and poor relative returns for ESG strategies over the same period.  The growth in BlackRock’s ESG products was led by its European business, while specialist transition themed strategies were popular in the US.  Against this backdrop of rapid overall growth of passive investing and its popularity with sustainability focused investors, Reclaim Finance calls for much greater transparency from fund providers and better investor awareness of the underlying holdings that may be incompatible with their sustainability policies.

Oil Companies Miles Off Transition Track

Stockholm (NordSIP) – “Investors seeking Paris-aligned portfolios cannot credibly invest in companies that are not themselves Paris-aligned,” states Maeve O’Connor, Oil, Gas and Mining Analyst at Carbon Tracker during the launch of the non-profit think tank’s new report Paris Maligned II on 20 March 2024.  The aim of corporate engagement initiatives like Climate Action 100+ (CA100+) is to use the combined power of large institutional shareholders to compel the world’s biggest emitters to make the transition towards low-carbon technologies.  Asset owners typically refer to their ongoing stewardship efforts as a justification for retaining fossil fuel shareholdings.  However, Carbon Tracker’s report reveals that no oil and gas company is yet taking the necessary action to align its activities with Paris climate targets.

The analysis of 25 oil and gas companies will be of interest not only to sustainable investors, but also universal owners mindful of transition risk exposure as well as financial institutions looking to manage their financed or insured emissions.  Carbon Tracker based the alignment assessment on a combination of metrics designed to provide a holistic evaluation of each company: future investments, production plans, recent project sanctions, emissions targets, and remuneration incentives.

The 25 companies’ upstream portfolios were evaluated in the context of Paris-aligned International Energy Agency (IEA) demand scenarios such as the 1.5-degree Net Zero Emissions by 2050 (NZE) scenario, the 1.7-degree Announced Pledges Scenario (APS) and the non-aligned 2.4-degree Stated Policies Scenario (STEPS) scenario.  With little or no space for additional fossil fuel extraction in the Paris aligned scenarios, the report highlights projects sanctioned by the likes of TotalEnergies, China National Offshore Oil Corporation (CNOOC), and Chevron that breach not only the NZE or APS but also the 2.4-degree STEPS scenarios.

Losers and no winners

The Carbon Tracker report provides an overall grade on a scale from A to H for each company based on the individually weighted alignment metrics.  The resulting ranking reveals relative leaders and laggards, as well as very poor climate alignment across the entire industry.  BP, the highest ranked firm thanks in part to planned reductions in production nevertheless scores a poor D grade.  Companies with plans to stabilise their output such as Repsol, Shell and Equinor are rated E.  ExxonMobil, Petrobras, Saudi Aramco, and ConocoPhillips languish at the foot of the rankings with G and H scores.  The latter company, for instance, plans to increase its production by 47% in the period to 2032 from a 2022 base level.  While Saudi Aramco aims to maintain oil output at current levels, it also targets a 43% increase in gas production by 2030.

With none of the 25 companies evaluated in the report displaying any reasonable alignment with the goals of the Paris climate agreement, institutional investors may call into question the effectiveness of several years of corporate engagement on the issue.  Investors seeking to maintain a Paris-aligned portfolio will seek to divest if rapid progress is unlikely, and those operating a best-in-class engagement strategy can draw extra leverage from Carbon Tracker’s research to increase pressure on their investee oil and gas companies.  With this objective in mind, the report includes a series of key engagement on specific topics designed to avoid obfuscation on the part of the oil companies.

FTN Selects 6 European Art. 8 Equity Funds

Stockholm (NordSIP) – On March 25th, the Swedish Fund Selection Agency (Fondtorgsnämnden or FTN) awarded procurement agreements for actively managed European large/mid cap equity funds on Sweden’s premium pension fund platform to the following six fund managers:
  • Abrdn Investments’ European Sustainable Equity Fund
  • AMF Aktiefond Europa
  • JPMorgan Funds Europe Sustainable Equity Fund
  • Nordea 1 – European Stars Equity Fund (BP-EUR)
  • SEB Europe Equity Fund
  • Swedbank Robur Europafond A
None of the funds qualifies as Article 9 under the EU’s Sustainable Finance Disclosures Regulation (SFDR). This is due to the inability of any Article 9 fund to perform better on FTN’s procurement criteria than the six funds selected. Nevertheless, all funds report as Article 8 rather than the minimum Article 6.

“We are pleased with the outcome. It gives pension savers access to high-quality funds at a lower cost”, said Mats Sjöstrand, chairman of FTN. “This marks an important step towards our goal of providing savers high-quality funds that provide a safer and higher pension,” Erik Fransson, executive director of FTN, added.

The Swedish Premium Pension System and FTN?
Understanding this decision requires a bit of historical context. The Swedish Pension System is organised into three broad parts, regarding the pension contributions and revenues made by workers and later received by themselves in retirement. Thought of as a pyramid, public state pensions are at the base, topped up by occupational pension schemes and last by private savings. As was the case in most Western countries, after World War II, most of Sweden’s public pension agreements worked in defined benefit (DB) systems, a generally speaking rigid and overly generous approach that tends to not tie pension revenues to pension payments. By the end of the 20th century, the system had become financially unsustainable. As a result, in the end of the 1990s, Sweden reformed its pension system, slowly moving all public pensions towards a mandatory defined contribution (DC) pension system. Among other facets of this system, every year, 2.5% of workers’ pensionable income and other taxable benefits is allocated to the premium pension system (PPM), a mandatory savings account administered by the Swedish Pensions Agency. To ensure the pension income necessary to sustain pensioners through their retirement, the Swedish Pension Agency (Pensionsmyndigheten)  provides for a number of investment options through different funds. However, the fund selection process has been marred in controversy since the very beginning of he new DC system. As researcher Anika Seemann explains, unexpectedly conservative investor behaviour and an overly crowded market, “led to problems in implementing the system as it had been conceived when it was introduced.”  In 2000, there were over 500 funds registered in the system. By 2008 there were 83 fund managers operating 773 funds in the PPM marketplace, worth approximately SEK231 billion. Seemann, says there were 800 funds in operation by 2012. However, too much choice and not enough regulation soon started raising concerns that some fund management companies were taking advantage of the PPM market. The issue came to a head in 2017 with the Allra telemarketing scandal, which led to a cross-party agreement in parliament to reform the PPM marketplace. In its latest attempt to address these concerns, in May 2022, the Swedish parliament created FTN and the agency with the responsibility of cleaning the premium pension system from unreliable actors to make it safer without compromising returns and lower costs to savers.

How Sustainable are the FTN-Selected Funds?

It appears that not a single fund in the procurement announcement can be described as an Article 9 fund according to the EU’s SFDR. Abrdn Investments’ European Sustainable Equity FundAMF Aktiefond Europa, JPMorgan Funds Europe Sustainable Equity Fund, Nordea 1 – European Stars Equity Fund (BP-EUR), SEB Europe Equity Fund and  Swedbank Robur Europafond A all report as Article 8 funds, according to SFDR. According to the definitions of SFDR, Article 8 funds classify as middle of the range in terms of their sustainability ambitions. While Article 6 have no sustainability focus, Article 8 funds are said to promote promote environmental or social characteristics. They are superseded in their sustainability credentials by Article 9 funds, which have sustainable investment as their objective. Why No Article 9?
According to the FTN, by law, the funds procured must be suitable, controllable, sustainable, cost-efficient and of high quality. In addition, the range of funds on the fund platform must provide freedom of choice for pension savers. According to Nadine Viel Lamare, Head of Sustainability at FTN, these criteria played an important role in the selection of the funds. “As you can see in our procurement report, all funds have been evaluated on a number of dimensions. In short, it is about having robust processes in place throughout the investment process. To be an Article 9 reporting fund is not, per se, enough and none of the Article 9 reporting funds that participated in the tendering process scored high enough on the overall evaluation to be awarded a fund contract,” Viel Lamare told NordSIP.

Next Steps

Following this decision, approximately SEK11 billion of the premium pension savers’ assets will be allocated to these funds. Around 130,000 pension savers have holdings in funds affected by the procurement.

The funds in the category that have not been allocated will be phased out from the fund platform after the decision has gained legal effect. Savers with funds that are removed from the fund platform are given the opportunity to make a new choice. However, savers do not need to do anything but are automatically moved to an equivalent, procured fund if no choice is made.

AP2 Appoints New Head of Sustainability

Stockholm (NordSIP) – The second Swedish Public Pension Fund (AP2) announced that Åsa Mossberg had been appointed as the new Head of Communication and Sustainability and would be part of the fund management, starting on March 26th. Mossberg has been the Chairperson of the AP Funds’ Council on Ethics since 2021. She joined AP2 in 2018 as a sustainability Analyst, before becoming a Senior Sustainability Strategist in September 2020. Prior to this, Mossberg worked as a Sustainability Manager at Alder, a Nordic sustainable investment fund, from January 2018. Between 2012 and 2021, she was also a Partner at Beadifference AB, a strategic sustainability advisor. She was also Head of Nordic Equity Research at UBS (1999-2004) and had various positions at Procter & Gamble (1993-1998). Mossberg holds an MSc degree from the Stockholm School of Economics    

Bridging the Water Gap

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Stockholm (NordSIP) – On the occasion of World Water Day, NordSIP took the opportunity to consider some of the water-related issues still plaguing our planet, what is still lacking and what resources have been channelled to address these concerns. Much remains to be done but the tools are available to fund the projects that promise to protect our oceans and improve sanitation.

Pollution, Climate Change and Droughts

According to figures published in Nature, the world discharges 730 million tons of sewage into the water. Industry accounts for 300 to 400 megatons of waste into the water every year. The quality of earth’s bodies of water matters, not only for the animals and plants that rely on them to survive but also as a crucial factor in the dynamics of global warming. As NordSIP heard at a panel on the Blue Economy at the 2023 GIIN Impact Investment Forum, the ability of the oceans to act as heat sinks has allowed average global temperatures to remain 17⁰C. Without them, this temperature would be 50⁰C. Meanwhile, climate change continues to increase water scarcity. A 2022 report by the UN Convention to Combat Desertification (UNCCD) notes that since 2000, the number and duration of droughts has risen 29%. 55 million people were affected by droughts every year around the world. Estimates suggest that up to 700 million people might be at-risk of being displaced because of drought by 2030. Between 1998 to 2017, droughts caused global economic losses of roughly USD 124 billion. At a time of increasing investor awareness of the value of natural capital, it should not escape the financial community that over 30% of the global biodiversity has been lost because of the degradation of fresh-water ecosystems due to the pollution of water resources and aquatic ecosystem, according to a 2015 report by UN Water.

Insuficient Sanitation

But the focus on the state of water should go beyond the issues plaguing it in the wild. As of 2022, 2.2 billion people still lacked access to a basic drinking water source, according to the latest report of the WHO/UNICEF Joint Monitoring Programme (JMP). The same report also notes that 3.5 billion people lack access to safe sanitation and that 419 million people. The issue is one of infrastructure, but also one of pollution.

Fulfilling the UN Sustainable Development Goals on Water

SDG 6 – Clean water and sanitation, and SDG 14 – Life below water (also known as the ocean goal), are the two SDGs directly focused on water. SDG targets 6.1 and 6.2 set the bar higher than simply basic access, aiming instead for safely-managed access that is within a 30-minute round trip. A 2016 estimate by the World Bank (WB) argued that achieving these targets will cost approximately US$114 billion a year between now and 2030, and those are only the costs for constructing new infrastructure, not the costs of operating and maintaining infrastructure over time. Meanwhile, the World Economic Forum (WEF) notes warns that “the ocean goal is the least funded of the SDGs. A 2020 study by Johansen and Vestvik estimates that US$174.52 billion per year is needed to implement SDG14 until 2030. Yet, in the period prior to the pandemic (2015-2019), SDG14 has received just below US$10 billion in total funding.”

Investment Opportunities

In this, as in many other themes, sustainable investors have a role to play and a range of investment opportunities at their disposal. As of 2022, there were 53 water funds managing assets worth US$36 billion across the globe, according to Morningstar. Ecolab and Pentair are some of the most prominent companies in this market, with BNP Paribas noting the importance of the latter of these two companies for the performance of its BNP Paribas Aqua and Global Environment funds in 2023. In fixed-income markets, Blue bonds are the financing vehicle often used by multinational development banks (MDBs) to channel funds to water-related projects. According to estimates discussed by Man Group, the period between 2018 and 2022 saw the issuance of only 26 blue bonds worth an aggregate US$5 billion, or less than 0.5% of the sustainable debt market. Nevertheless, this is an interesting market with issuers such as the Seychelles, Belize and Ecuador. In the Nordics, the Nordic Investment Bank (NIB) is known to come to the market with Blue bonds financing projects in the Baltic sea.

A Time to Act

Water matters. It is a source of life to all living creatures and its maintenance plays a crucial role in the stability of our climate and the viability of social and industrial infrastructure. Much remains to be done to fill the US$200 billion annual funding needs of SDGs 6 and 14. The instruments are available to channel the necessary funds to the projects that promise to facilitate the sustainability transition in the water sector. Now is the time to act.

Stop Picking on us Say Oil Giants

Excellent news from the fossil fuel industry this week: some of the biggest global oil and gas companies have publicly declared that they will no longer take part in greenwashing.

Unfortunately, rather than a Damascene realisation that they should finally start putting more of their multi-billion Dollar profits into renewables, it is sadly a case of these companies simply dropping the climate-friendly façade and saying what they really think.  They know we are addicted to oil, and they like it.  They also very much look forward to getting the developing World addicted too.  In some way it is refreshing to see them ditching the relentless smoke-and-mirrors act to present their true Super-Villain identities to the planet.

Earlier this month ExxonMobil CEO Darren Woods told Fortune magazine that the solution to the climate crisis rests not with Big Oil but with consumers: “People who are generating the emissions need to be aware of [it] and pay the price, that’s ultimately how you solve the problem.”  ExxonMobil is the world’s largest private sector oil company and made a cool $36 billion profit last year.  The company scores a D on climate lobbying NGO InfluenceMap’s ranking, which states: “ExxonMobil shows negative engagement on most forms of climate regulation and advocates for energy policies that would accelerate fossil fuel development.”  The Texan oil titan is also infamous for its eerily accurate proprietary climate change predictions dating back to the 1970s, which were somehow never made public in an unfortunate case of the-dog-ate-my-homework.

So, you think Woods deserves Top Super Villain billing for washing his hands of the whole climate change responsibility thing?  “Hold my Coke,” said Saudi Aramco President and CEO Amin H. Nasser, stepping up to the speaker’s podium at CERAWeek 2024 on Monday 18 March.  The conference brings together 8,000 international delegates in Houston, Texas to discuss the Multidimensional Energy Transition: Markets, climate, technology and geopolitics.  Aramco scores a dismal E+ (the plus is doing a lot of heavy lifting here) on the aforementioned LobbyMap ranking.  InfluenceMap may choose to revisit that mildly encouraging “+” once they read the full text of Nasser’s speech.

Solution for too much oil is more oil

“We should abandon the fantasy of phasing out oil and gas, and instead invest in them adequately, reflecting realistic demand assumptions,” says Nasser, which reportedly drew warm applause from the CERAWeek audience.  He also directly contradicted the International Energy Agency’s (IEA) forecast of peak oil demand by 2030, while criticising what he described as the minimal impact on emissions achieved so far by renewable energy technologies and electric vehicles (EVs).  This may seem rich coming from an industry that has been working hard to slow down and dilute international climate negotiations and commitments, as frequently reported in this column and elsewhere on NordSIP, and which is also rumoured to be behind a co-ordinated mass media campaign of disinformation about EVs. Commenting on Nasser’s speech, Jeff Ordower of climate NGO 350.org said: “They work night and day to torpedo a transition to renewable energy and then have the audacity to critique the slowness of the transition itself.”

Key to Nasser’s argument is the fact that fossil fuels are cheaper than the low-carbon alternatives, which means they are better for consumers.  However, he only refers in his speech to the costs of hydrogen, a fossil fuel alternative that is popular with oil companies (so-called Blue hydrogen is produced using hydrocarbons) but which is not yet considered a serious challenger to Internal Combustion Engine (ICE) vehicles: “hydrogen still costs in the range of $200 to $400 per barrel of oil equivalent, while oil and gas remain much cheaper.  Meanwhile, without subsidies, EVs are up to 50% more expensive than an average internal combustion engine car. They cannot be subsidised forever,” declares Nasser.  However, wind and solar are universally accepted as being demonstrably cheaper technologies for any new energy generation projects.  His speech also mysteriously neglects to mention the $7 trillion in subsidies enjoyed by the global fossil fuel industry in 2022.

World should thank Aramco, apparently

Just a moment while the Laundromat brings out the proverbial World’s Smallest Violin ahead of Nasser’s next quote: “Despite our starring role in global prosperity, our industry is painted as transition’s arch-enemy!” bemoans Nasser.  This brings to mind a TV drama character shouting down the road at a departing partner’s taxi: “After all I’ve done for you!  You would be nothing without me!”  Perhaps if the fossil fuel companies had begun investing more than a negligible percentage of their enormous profits in genuine low-carbon technologies, ceased greenwashing, denying climate science, and lobbying against international climate action, the alleged demonisation might have diminished somewhat.  In the meantime, Nasser’s tone simply echoes the lamentations of a doomed industry.

In the interest of balance, is there anything remotely sensible to be found in Nasser’s speech?  Yes, as it happens he does inadvertently raise some important issues: “As prosperity eventually rises in the Global South, so will demand for energy, and these nations cannot afford expensive energy solutions.  Yet despite representing over 85% of the world’s population, they currently receive less than 5% of the investments targeting renewable energy.”

This is indeed a problem, but where we might politely differ is in the choice of solution.  Nasser points out that the annual oil consumption per capita in developing countries is only one to two barrels, compared with 9 barrels in the EU and an impressive 22 in the US.  He therefore states that the logical next step is to get everyone up to US-style fossil fuel consumption levels by extracting yet more oil and gas.  Might we respectfully suggest an alternative approach?  How about bringing US and EU oil consumption down to less obscene levels, while simultaneously compelling wealthy nations to address the yawning climate finance gap so that developing nations can afford to leap-frog obsolete fossil technology and build future-proof renewable energy grids instead?  We could use some of those gigantic fossil fuel profits for starters.

Nestlé Faces Shareholder Junk Food Rebellion

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Stockholm (NordSIP) – A group of institutional shareholders representing assets under management of almost $1.7 trillion is taking aim at the world’s largest food and beverage manufacturer in a concerted effort to reduce its reliance on unhealthy products.  In a campaign supported by non-profit non-governmental organisation (NGO) ShareAction, Legal and General Investment Management (LGIM), Candriam, La Française Asset Management, Coöperatie VGZ and the Guys and St Thomas’ Foundation have filed a shareholder resolution ahead of Nestlé’s next AGM on 18 April 2024.

The Swiss-headquartered multinational stands accused of running a strategy that goes against its self-declared corporate aim: “To unlock the power of food to enhance quality of life for everyone, today and for generations to come.”  In addition to the health concerns, the resolution highlights regulatory, reputational, and legal risks as well as opportunity costs that could have an adverse effect on the company’s share value over time.

The threat to long-term brand value

Nestlé is the world’s largest food and beverage company in terms of revenue from its sales in 188 countries.  An independent peer-reviewed global study across seven major markets concluded that 75% of Nestlé’s food and drink sales are classed as unhealthy according to the World Health Organisation’s (WHO) Euro Nutrient Profiling Model (NPM).  Faced with the costs of a growing obesity crisis, many governments are taking regulatory, fiscal, or labelling measures to curb the sales of highly processed food and drink products that are typically high in salt, sugar, and fat.  Added to this regulatory risk for Nestlé is the reputational risk represented by growing consumer awareness and mass media coverage of the risks of junk food products, as well as potential longer-term litigation risk should the food industry follow the same trajectory as the Big Tobacco firms.

ShareAction began co-ordinating a collaborative engagement campaign towards Nestlé involving more than 40 investors in April 2021, following which the company agreed to set an ambitious target to sell more nutritious food and beverages.  However, ShareAction claims that the targets for increased sales of healthier products simply reflect overall projected firm-wide growth rates and do not shift the balance towards better nutrition.  Moreover, Nestlé is accused of a lack of transparency and methodological rigour in its internally reported data, which contrasts with third party assessments.  For example, the company includes items such as vitamin supplements and coffee as healthy products, against the generally accepted recommendations of health professionals.

The shareholder resolution demands

The shareholder resolution jointly proposed by the five institutional shareholders involved in this campaign calls for an amendment to Nestlé’s Articles of Association as required under Swiss law.   This will require improvements to be made in the company’s reporting on non-financial matters, which must include absolute and proportional sales figures for food and beverage according to their healthfulness as defined by a government endorsed NPM as well as timebound target for increasing the proportion of sales derived from these healthier products.

The actions recommended under the resolution stand to reduce the various risks to share value associated with Nestlé’s current strategy, while helping to address global health-related sustainability goals thanks to the company’s sheer size and global reach.  ShareAction also argues that Nestlé could also reap potential competitive benefits from the long-term growth opportunities associated with the global trend towards healthier nutrition.  The NGO is calling on all Nestlé shareholders to familiarise themselves with the supporting material within the Investor Briefing with a view to voting for the resolution at the company AGM on 18 April 2024.

Who Cares About Vegetable Oil Spills?

Stockholm (NordSIP) – On 16 March, a major spill of soybean oil occurred in the port area of Karlshamn in southern Sweden. AAK, formerly AarhusKarlshamn, a global Sweden-based company and producer of vegetable oils and fats, promptly confirmed that the spill originated at their facility, during the unloading from a tanker ship. Over the weekend, the local rescue services have been busy trying to prevent the spill from spreading further and the police have launched an investigation into the circumstances of the spill. According to a spokesperson for AAK, however, while turning the water in the port unpleasantly yellow and sticky, the released oil wasn’t dangerous.

As someone who has been aware of the problem of vegetable oil spills for some time now, David Seekell, Head of Sustainable Investing and ESG at Atle, is following closely the developing situation. “The newspapers really did AAK a favour by just accepting and reporting that cooking oil is non-toxic rather than actually looking into it,” he comments. “They mention that the leak is contained in the harbour. However, in terms of impact, it is still very bad as it is where you are most likely to create oxygen depletion and dead zones. This is also where all the fish and birds are found. Hopefully, they can clean it up quickly before that happens!”

A staunch advocate of corporate accountability, Seekell is eager to explain why investors should care about vegetable oil spills and what they can do about the issue. “Vegetable oil spills are often biodegradable, but the flip side is that this involves intense bacterial respiration that consumes huge amounts of oxygen, creating dead zones,” he wrote on LinkedIn in November, listing several related environmental impacts ranging from dying waterfowl, fish, and shellfish to contaminated shorelines and beaches.

According to Seekell, active investors can and should do something about the problem. “Ask companies for transparency,” he says. “The Global Reporting Initiative (GRI) disclosure 306-3 for significant spills is a good first step on their part.” He also points out the importance of ensuring that companies have developed adequate spill prevention and response plans. “Ask your companies if they have them at their facilities,” he urges.

Putting their money where the mouth is, Humle Fonder, one of the fund companies within Atle, has been engaging with AAK on the very same issue as an active shareholder. Upon noticing that AAK had stopped reporting on oil spills, Seekell and his colleague, portfolio manager Petter Löfqvist, felt compelled to react, demanding that the company disclose the number and size of its significant vegetable oil spills in the annual sustainability report. They have also sought clarification on the company’s compliance with spill prevention, control, and countermeasure regulations as well as several related issues.

According to Löfqvist and Seekell, AAK’s history of occasional spills poses a significant reputational risk which could have financial implications. “We believe transparency is the best approach to assure stakeholders that AAK’s commitment to managing sustainability risks extends across its entire business,” they assert.

“Of course, none of this is unique to AAK,” adds Seekell. “As the trade in vegetable oils continues to increase, it has become a question of ‘when’ rather than ‘if’ spills will happen. I believe the problem will become more frequent in the future.”

It is time more responsible investors joined forces with Atle to engage with AAK and its peers on vegetable oil spills.

European Council Finally Approves (Watered Down) CSDDD

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Stockholm (NordSIP) – The Corporate Sustainable Due Diligence Directive (CSDDD) has been one of the most protracted legislative struggles on the EU’s sustainability agenda recently. The European Commission proposed the measure in February 2022 and the directive has gone through the usual process of EU legislative proposals, positions and delays, until last Friday, when a compromise seems to have been found in the European Council, where member states are represented.

The Way Here

Most recently, Swedish NGO Swedwatch warned that Sweden would oppose the deal, while Germany and France also expressed some concern, leading the Council vote on the CSDDD to be postponed from its 9 February original deadline. Continued delay worried members of the European Parliament about the ability of the Council to approve the measure before the European Parliament election in June, which caused them to pressure the European Commission and the European Council last week. However, it seems that a recent proposal by the Belgian presidency has been able to overcome enough opposition to guarantee the necessary “qualified majority” to yield approval of the legislation in the Council of the EU last Friday, March 15th. Among other developments, it is understood that Germany and Sweden abstained rather than actively oppose the approval of the CSDDD.

The New (Council-Approved) Draft

By necessity, such a compromise required the watering down of the previous requirements imposed by the CSDDD. According to law firm Loyens & Loeff, the proposal has a more limited scope. The due diligence requirements to apply only to larger companies, both in terms of minimum turnover (€450 million up from €150 million) and in terms of workforce (1000 workers up from 500). This is estimated to decrease the coverage of the CSDDD to only one-third of companies covered by previous versions of the directive. Implementation is also scheduled to be tiered, with smaller companies being given more time to implement the CSDDD. Companies covered by the regulation are also no longer required to promote the implementation of required transition plans through financial incentives to management and board members. With the Council’s approval the CSDDD legislative ball returns to the European Parliament to approve this latest version of the directive. The European Parliament’s JURI Committee is expected to vote on this issue on 19 March 2024, before a plenary vote in April 2024. “We welcome that the directive was voted through, but it is difficult to be happy when the content has been watered down in a number of important areas. That so few companies are covered is an enormous erosion of the law’s purpose: to protect the environment and people whose rights are violated in global value chains. That Sweden could not even stand behind this version is incomprehensible,” says Alice Blondel, head of office at Swedwatch. Update: On Tuesday, March 19th, MEPs on the JURI Committee adopted with 20 votes for, 4 against and no abstentions the new CSDDD rules, paving the way for their discussion in a plenary session of the EP.

Capital Launches SDG-themed Funds

Stockholm (NordSIP) – Three new funds launched by US asset management firm Capital Group promise access to a broad range of sustainable investment themes.  The funds are classified as Article 8 under the EU Sustainable Finance Disclosure Regulation (SFDR) and targeted at investors in Europe and Asia.

Investors can choose from a global equity, fixed income or multi-asset strategies via the Sustainable Global Opportunities Fund, the Sustainable Global Corporate Bond Fund, and the Sustainable Global Balanced Fund respectively.  The Luxembourg-domiciled UCITS vehicles aim to identify companies that offer compelling long-term investment prospects through their alignment with seven themes mapped to the United Nations’ Sustainable Development Goals (SDGs).  The chosen themes are Health & well-being, Energy transition, Sustainable cities & communities, Responsible consumption, Education & information access, Financial inclusion, and Clean water & sanitation.

Capital Group will aim to narrow the universe to those companies with more than half of their business aligned with the selected SDGs.  This assessment will typically be carried out on the basis of revenue but will also draw on more sector-relevant financial metrics in specific cases, for instance the energy production mix for utility companies.  The strategies also consider transitioning companies that are moving toward higher positive alignment over the long term.  While their current alignment may be low, the expectation would be to see material positive change in the near-to-medium term (3-5 years).

Commenting on the launch of the new funds Jessica Ground, Global Head of ESG at Capital Group said: “The UN estimates there is a $4.3 trillion annual financing gap to deliver against the UN SDGs.  We believe it will take a wide range of innovative companies to bridge this gap. Companies making improvements in important areas such as ‘financial inclusion’, the ‘energy transition’ or ‘health and well-being’, will play a significant role in the world’s transition to a more sustainable future and can offer compelling long-term opportunities for investors.”