There is more and more talk about responsible investing but what does it actually mean in practice? And how can investors estimate the impact of their portfolios? Evli’s Head of Sustainability and Responsible Investment Analyst explain how responsibility is implemented in everyday terms.
Responsible investment generally means taking ESG factors – matters related to the environment, social responsibility and good governance – into consideration alongside the financial figures. However, it is not quite that simple.
Outi Helenius, Evli’s Head of Sustainability (left) points out that responsible investment always involves a discussion about responsible operation and what this actually involves. It does not have to be something new: at Evli, openness and transparency are cornerstones of the company’s operations and are taken into consideration in all investment decisions.
“We don’t have separate funds that are responsible - all our funds have ESG integrated in their investment process,” Helenius says.
At Evli, this means that investments are processed through four different procedures. This includes an ESG analysis, monitoring of norm violations and engaging, exclusion of controversial weapons, and ESG reporting.
“The most important of these is ESG analysis. This means that portfolio managers are able to take responsibility factors into account in investment processes with the help of a separate responsibility database that we have created. In addition, investments are also assessed by the Responsible Investment Steering Group,” says Helenius.
ion, investments are also assessed by the Responsible Investment Steering Group,” says Helenius.
We react to norm violations quickly
ESG funds are sometimes criticized because their actual impacts are difficult to monitor. According to Outi Helenius, Evli supports the ten principles
of the UN’s Global Compact initiative and the same values are observed in Evli’s investments.
“We respect human rights, we do not allow corruption and we prohibit the use of child labor. These principles are applied to all of our investments,” Helenius says.
In practice, all investments in Evli’s funds are scanned every three months for suspected norm violations, and there is a systematic process to deal with any offenses.
“We always analyze all of these cases with the portfolio manager. And then they are processed in the Responsible Investment Steering Group,” Helenius says.
Many times, the responsibility team will contact the violating company.
“We contact the company by e-mail and telephone and tell them why we have contacted them. Our goal is to change the way the company operates so that it becomes more responsible.
Sometimes, closer monitoring is required.
“We choose this course of action if we can see that the company is doing its best to correct the situation. In this case, we monitor progress and then make our decision when we’ve seen development.
Sometimes, the situation is not the worth the investment.
“In these cases the portfolio manager will sell the investment that has been found to be irresponsible,” Helenius says.
The subject of responsibility is increasing in importance
Interest in responsible investment has grown in recent years. Elina Niiranen, who is a Responsible Investment Analyst at Evli, says that a growing number of investors are interested in the subject.
“Responsibility is a big thing for our clients and there seems to be more and more interest in it,” says Niiranen.
She believes the simplest way to monitor the responsibility of Evli’s funds is to read their responsibility reports.
“The reports provide a clear responsibility score for the fund and show the distribution of the responsibility scores of the fund's investments. If you want to learn more about Evli’s way of investing responsibly, it is worth reading Evli’s responsible investment annual report for 2018,” says Niiranen.
Orginal text published in Finnish by Pi Mäkilä
Picture: Vesa Tyni