Sweden’s historical approach to socially responsible investments in asset management is set to undergo a change, according to industry experts.
The case for change
The research also noted that there has been another shift away from the dominant SRI process of nega- tive screening, revealing that ‘75% of investors say that they use negative screening as a method.’
Swesif adds: "One method that has grown during the period is com- pany dialogue, with the objective of fostering change. Company dialogue is used by 32% of investors. Other methods, such as actively selecting companies that are ahead in the area of sustainability, are little used in Sweden."
Whatever the method, expectations are that further changes will be led by institutional investors. For example, default settings in the country's pension system mean that certain amounts of capital are directed automatically towards the likes of AP7, which will invest money only in companies that follow requirements laid down in international conventions signed by the Swedish govern- ment (covering areas such as human rights, environment and rights at work), even though AP7 does not define itself as an ethical or environ- mental fund.
A spokesperson for AP7 confirmed anecdotal evidence of growing interest in SRI and ethical investments in the area of pension provision. But, as with Swesif's research, it noted the ongoing debate in the asset management community as to the best method to achieve such objectives.
"Our ethical and environmental policy is aimed not at blacklisting companies, but at promoting change," AP7's website explains.
"We will exclude a company from our investment portfolio for five years if: a court has issued a judgement against it; a public body monitoring an international convention publishes documentation identifying the company for treaty violations; the company's management admits criminal activity; or we decide exclusion is the right course of action.
"In line with Swedish government policy, AP7 does not invest in companies we believe are involved in developing and producing nuclear weapons."
Further change is on the way, according to Sasja Beslik, head of SRI at Nordea Bank. He characterises the market as having been static for the past decade, with a lot of interest in what he calls first-generation SRI fund products simply focused on the negative screening or exclusion of holdings that do not meet requirements, such as arms, tobacco and alcohol companies.
"Scandinavia is a bit different this way in that many of these products also make reference to internation- ally agreed standards of human rights and other agreements, such that companies deemed to be failing these standards are also excluded," Beslik says.
The second generation of SRI products focused on a so-called best-in-class approach, which sought to identify companies in different sectors that lead on issues such as sustainability.
The third generation was green tech or themed products - these are not particularly prevalent in he Nordic markets.
The fourth generation is focused on integrated products, in which SRI is embedded within mainstream products. The fifth and latest generation is about sustainable finance, Beslik says. However, with first generation products accounting for an estimated 80-85% of SRI sales in Sweden and other Nordic countries, "this is simply not good enough".
"The institutional market in particular is driving change towards fourth and fifth-generation products," Beslik adds.