An asset manager’s utmost duty is to help clients increase their wealth

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In an environment of increased risk to businesses and investments from climate change, Evli believes the time is right to announce an upgrade of its ESG and RI capabilities.

“An asset manager’s utmost duty is to help a client increase their wealth. If they don’t take into consideration something as existential as the environment and climate change, then they will be failing in their fiduciary duty,” says Maunu Lehtimäki, Evli’s CEO.

These are the words of a CEO who is convinced, that a culture of RI* and ESG** must course through the veins of a company. The wheels were set in motion years ago to implement this way of thinking from top to bottom, but over the past five years the message has crystalised and become even more crucial as we enter an uncertain period.

“At Evli, we believe the scientists when they say that unless there’s a dramatic change in CO2 emissions, the operating environment for many industries will become unviable and that thousands of businesses across the world will be severely affected. This, of course, will have a huge negative impact on investors and their investment assets,” Lehtimäki continues.

According to the European Commission’s Joint Research Committee (JRC), if no further mitigating actions are taken and global temperatures rise by 3.5°C, climate-related damages in the European Union alone could amount to at least USD 224 billion – a net welfare loss of 1.8% of its current GDP.

Investors are taking note. “37% of all institutional investors, and that number is bound to rise, believe that ESG issues are very important to their investment portfolios. As we’ve seen lately, ESG has started to have an impact on the pricing of companies and how investors value them. It might sound naïve, but there’s also a general value system that most of our clients, especially in the Nordics, think is very important. Therefore, we must continually take these values in account as we evolve our strategies,” says Kim Pessala, Evli’s Head of Institutional Clients.

Criteria vary but principles never waver

“When I started at Evli about 5 years ago as a coordinator for Responsible Investments, I sat down with the portfolio managers to discuss ESG and RI with them. It turned out that they already were following that approach, and had been for decades. They had simply thought that ESG and RI were something else,” recalls Outi Helenius, Head of Sustainability at Evli.

In fact, Evli has a long history of implementing ESG and RI in its investment strategies, having signed up to the UN’s Principles for Responsible Investment (UNPRI) in 2010. It has also been an investor member of the London-based Carbon Disclosure Project since 2007 and a member of Finsif, Finland’s Sustainable Investment Forum, since 2010.

Building on these institutional capabilities, Evli recently updated its ESG strategy to emphasise the impact it has on portfolios, as well as reinforcing the company’s commitment to investing in a responsible manner. “The fact that this has come from the board of directors, and is now one of our key strategic focus areas, underlines how important ESG is to us,” Lehtimäki points out.

The strategy update brings with it a uniform set of ESG investing principles for portfolio managers across the company, building on the systematic way that ESG investing decisions have been made since 2016. Evli has made a significant investment in its own ESG database, in order to bring greater transparency to its reporting. ESG reports for Evli’s funds have been available to everyone since 2017 and comprehensive recent updates mean they now include, for example, climate change mitigation metrics.

Evli has always believed that it is important for clients to have a solid understanding of its approach to ESG and how its footprint impacts portfolios. It has therefore become essential that all ESG reports are open, transparent and easily understood.

“Compared to 10 years ago, we now have better tools to dig in, visualise and measure the impact of ESG factors in a client’s portfolio. We can also include ESG indicators that weren’t possible earlier. Of course, different clients want different ESG criteria, and therefore the specific criteria can vary, but our commitment to the general principles of ESG never waver. When we have questions about investing in particular companies, we always go back to our principles to find the answers,” says Pessala.

Building capabilities to keep promises

The strategy update is the result of the decision made more than five years ago to organically and systematically transform Evli’s approach to ESG and RI investing. “Over the past few years, we have been working to ensure that everything was in place and that we were able to go all the way, before we told the world about it,” explains Lehtimäki. “It’s in our DNA and corporate culture to promise less and deliver more.” 

Once Evli’s board set the ESG agenda, the company ensured that everybody, from the portfolio managers to those being interviewed for a position at the company, understood that ESG investing was set to become an integral part of our business. The fund managers were then equipped with the right tools, in terms of software, databases and people resources, to do the job. “This strategic update is our way of telling our clients that we have built up the capabilities to deliver on our promises of Responsible Investing,” says Pessala.

“Responsible Investing will become the normal way of investing.”

Lehtimäki strongly believes that to have a lasting impact, an industry-wide change in approach is necessary. “The general approach of fund managers and investors has been exclusionary, where companies that produce high levels of environmental pollutants do not attract investments. This isn’t the way forward. We need to stop only penalising and instead start rewarding those polluting companies that make a commitment to change and create a plan with verifiable milestones to achieve that change”.

He also has a word of caution for companies that use ESG and RI as merely marketing tools. “In the long run, there’s fairness in the world and such companies will be caught out. I think Warren Buffet put it really well when he said: ‘When the tide goes out, you will see who was swimming without their trunks,’” Lehtimäki says.

Investments in ESG and RI funds are set to increase over the coming years. As of 2018, USD 30 trillion of funds were already held in sustainable or green investments – a rise of 34 per cent in just two years, according to The Global Sustainable Investment Alliance. “If you look at the new goal that the European Parliament has ratified, emissions will need to be reduced by 60% by 2030. That’s ambitious and we need private money to make it happen,” says Helenius. “Therefore, Responsible Investing is set to become the normal way of investing.”

 

*RI= Responsible Investing
**ESG stands for Environmental, Social and Governance