Climate change increases the risks for companies and investments, and this is a crucial issue from an investor's perspective. For Evli, responsibility is one of the strategic focus areas and the company has clear objectives for developing responsible investment. Climate change mitigation is one of the key themes of Evli's responsible investment policy.
"Our main task as an asset manager is to help our clients grow their wealth. However, as the environment and climate change are of vital importance for the future, ignoring climate change would be a betrayal of trust in our clients", says Maunu Lehtimäki, CEO of Evli.
CEO Lehtimäki believes that responsible investment and ESG factors (environment, social and governance) should be at the core of corporate culture. The work to adopt this mindset already started at Evli years ago and has progressed through the organization, from management to employees. Over the past five years, the message has become even clearer and more important as global uncertainty has increased.
"At Evli, we believe strongly in science. Unless there is a dramatic reduction in carbon emissions, the operating environment in many industries will become unviable, with serious consequences for thousands of businesses around the world. This will also have a very negative impact on investors and investment returns", Lehtimäki continues.
In June 2021, Evli published its climate targets, according to which Evli aims to halve the carbon emissions of its investments by 2030 and achieve carbon neutrality by 2050 at the latest. The target applies to emissions from both Evli's own operations and investments, and requires that the investment environment allows for this.
"We recognize that a credible long-term net zero target requires sufficiently ambitious milestones to support it," says Outi Helenius, Head of Sustainability at Evli, adding, "We understand that the interim targets we have set for investments, a 50% reduction in indirect emissions from investments by 2030, is very ambitious. We have therefore also set up a separate climate working committee to explore how we can best achieve the investment-related interim target with real-world emission reductions and in line with the Paris Agreement."
"Investors have also become more interested in responsible investing - more and more Finnish institutional investors believe that ESG factors play a role in their portfolios and the proportion of aware investors is growing all the time. Recently, we have seen that ESG factors have started to influence stock pricing and valuations. This may seem naïve, but there are core values that most of our clients rely on, especially in the Nordic countries. Therefore, we need to continuously incorporate responsibility values into the development of our strategy", says Kim Pessala, Head of Institutional Wealth Management at Evli.
The criteria can change, but the principles remain the same
"When I started at Evli about five years ago as a Responsible Investment Coordinator, I sat down with portfolio managers to discuss responsible investment and implementation of ESG principles. It turned out that the portfolio managers had been doing responsible investing for decades. They had imagined that ESG and responsible investing meant something else", recalls Helenius.
Evli has a long history of responsible investment, having signed the UN Principles for Responsible Investment (PRI) already back in 2010. Evli has also been an investor member of the international non-profit organization CDP (formerly the Carbon Disclosure Project) since 2007 and a member of Finsif (Finland's Sustainable Investment Forum) since 2010. CDP encourages companies to report on their actions on climate change, forest and water use, and Evli has been involved as an investor in many engagements with other investors to encourage companies to report and set science-based targets for their operations. Building on its long experience and development efforts, Evli updated its responsibility strategy with the aim of highlighting more clearly the impact that ESG principles have on investment portfolios. "The fact that this development has come from Evli's Board of Directors and that responsibility is now one of our more important strategic priorities shows how important responsibility is to us", says CEO Lehtimäki.
At Evli, portfolio managers apply consistent responsible investment principles throughout the company. This is based on a systematic model for making responsible investment decisions since 2016. Evli has invested significantly in its own ESG database, which is used as part of company-specific analysis, risk management and transparent reporting. Evli's ESG reports for its funds have been available to everyone through Evli's website since 2017, with new comprehensive updates including, for example, metrics related to climate change mitigation.
It has always been important to Evli that customers have a clear understanding of the importance of responsibility to Evli and how its work in this area affects portfolios. It is therefore essential that the funds' ESG reports are freely available, transparent and clear.
"We have better tools to guide, visualize and measure the impact of ESG factors on a client's portfolio than we did ten years ago. We can also use ESG metrics that were not possible before. Of course, different clients want different ESG criteria, so the criteria may vary, but our strong commitment to responsible investing remains. Our decisions to invest in a particular company are always based on Evli’s principles", says Pessala
Evli also offers all its clients a comprehensive client-specific and portfolio-specific ESG report, which covers equity and corporate bond investments as well as equity, corporate bond and index fund investments, and is happy to discuss with its clients the responsible investment solutions that are right for them.
Strengthening capacity to deliver on promises
The strategy update was the result of a decision made more than five years ago to strengthen Evli's approach to responsible investing and ESG criteria in an organic and systematic way. "Over the past few years, we have invested in ensuring that we are ready and able to achieve our goals before we announced the update", says Lehtimäki. "More results and fewer promises is part of Evli's DNA and corporate culture.”
Once the Board of Directors had decided on the ESG programme, the company made sure that everyone from portfolio managers to job seekers understood that responsible investing would become a key part of the business. Next, portfolio managers were given the tools they needed, including software, databases and human resources. "This strategic update allowed us to tell our clients that we have strengthened our ability to deliver on our responsible investing promises", says Pessala.
“Responsible investing is becoming an established way of investing.”
Lehtimäki firmly believes that a lasting impact requires an industry-wide change in approach. The general approach of fund managers and investors has been exclusionary, as polluting companies are not attractive investments. This is not the right approach. Instead of punishing, we need to reward polluting companies that commit to change and draw up a plan with verifiable milestones to make the change happen.
Lehtimäki also wants to warn against companies for whom ESG and responsible investing is just marketing. "In the long run, justice will win and such companies will be caught. In the words of Warren Buffet: When the water goes down, we'll see who doesn't have swimming trunks", says Lehtimäki.
At present, the EU is also stepping up regulation and the definitions of responsible investment are becoming more established. The first part of the Sustainable Finance Disclosure Regulation (SFDR), which entered into force in spring 2021, specified that investment product providers had to classify investment products according to how they take sustainability factors into account in their investment activities. Most of Evli's funds were classified as funds that promote sustainability (so-called Article 8 funds, light green) and two funds as having sustainability objectives (so-called Article 9 funds, dark green). Evli has also been actively engaged in discussions on the disclosure regulation and its application with various stakeholders and has spoken at several seminars as a representative of asset managers.