This content is from: Portfolio

Nordic Countries Excel In Socially Responsible Investing

There are about 100 so-called ethical funds in the Swedish market today. But the question remains: What does ethical investing really mean?

Though the line between ethical and unethical investment still remains elusive, the most relevant and eternal question today is, “What is an ethical act; a life lived in the best of ways?”

There is a constant ambivalence in the Nordic investor fraternity as to where to draw the line. There is a huge need for deeper investigation, before deeming a company as being ethical or responsible.

The emphasis has gone from a purely environmental concern in the 1980s to a more holistic viewpoint, including Governance, Human Rights and the Stakeholder’s interests, which we commonly know as SRI today.

What in the rest of the world is called “SRI” is called as “Ethical Investment” in Scandinavia. Lately, however, there are those who, for want of a better word, use the term “Responsible” and “Sustainable” instead of the morally colored word “Ethical.”

There are about 100 so-called ethical funds in the Swedish market today. About 11 percent of all investments — more than SEK 120 billion — are invested in the ethical funds as of May 2010, although there is no general definition of what an ethical fund is. Each investor firm applies its own criteria.

However, in an attempt to clarify the matter, the Consumers Right Authority and the Fund Companies Association agreed jointly to set up requirements concerning what can be allowed to be classified as an “Ethical fund.”

This has not helped a great deal in the long run, when it comes to on-the-ground-reality. Many of the Swedish ethical funds have or had large sums invested into BP, contented with the assurance by this company of its environmental friendliness. It is not easy to move beyond the “green-washed” façade of multinationals.

In Sweden, Banks and Financial Services companies offer ethical funds because there is a great demand for it not only from individual investors, but especially from institutions, municipal entities and the likes, which come to invest their money.

There is obviously a call for a greater demand on transparency, on-the-ground-analysis and research on these companies making up the so-called Ethical funds. Otherwise, we all end up losing - the Community in which the company operates, the Environment and also ordinary people like us, who might have our savings placed in an Ethical fund which might make a plunge, IF and WHEN, any of the irregularities of an unethical company surge to the surface.

Every now and then we read about such incidents in the news. In a survey made by Folksam, the survey results demonstrated that a majority of people believe that the ethical funds have worse Financial Performance than a “normal” fund, which is incorrect. The Ethical funds have a better result than the normal ones, both looking one year back and looking 10 years back. If people knew this, the Ethical funds would probably yield even more interest. There is a call for making the general public aware of the “Profitability of Sustainability.”

The Banks/ Fund companies can make up special selections for the client excluding any unwarranted activities. But this requires an active approach from the client. One clear example of this is the Swedish church that has a zero-tolerance level for pornographic business, which makes them stay away from investing in several companies listed on the Stockholm stock-market.

There is a great deal of goodwill in the general public of the Nordic countries, in wanting to place their savings in funds that can give them the guarantee that no suffering will be caused neither to the planet Earth nor to any third person, as their invested money grows.

However, contrary to proven facts, people in general believe that the ethical investments are less profitable and they are still prepared to place their money in them. A stronger marketing effort from the Banks/ Asset Management companies about the profitability of the ethical funds is needed.

“Ethical Investment” is a blurry, but commonly used, expression in the Scandinavian investment market. The way forward would be to define it well, then investigate in details whether it is only being spoken about or really practiced on the ground by companies we invest in, after floating these ethical funds, so that the general public can have a clearer picture and can take an informed decision regarding their investment.

These two indicators could bring up the figure of responsible investments from 11 percent (in Sweden) to a considerably higher number.

Helen Sjölund is a Sustainability Analyst with Solaron Sustainability Services. Born and brought up in Sweden and travelled across many markets, she is currently based in Dubai and covers the Middle East and Asia regions. Solaron (www.solaron.in) is a niche Sustainability / ESG research firm with a global team of 60+ Analysts present across several Emerging markets like India, Brazil, China, UAE, Mexico, Russia, Eastern Europe and Africa.

Related Content