Nordic countries and companies are the forerunners in all things sustainable. For an investor wanting to strengthen their portfolio with innovative and responsible companies, it pays off to look north.
The Nordics are home to many beloved concepts around the world, whether it’s clean-cut Scandinavian design, the Danish, stay-at-home-in-your-pajamas concept of “hygge” or the Finnish “sisu”, the ability to persevere through toughest of circumstances.
There’s one concept that could be added to the list of Nordic exports admired throughout the world: sustainability.
We took a look at why the region is the home of the most sustainable companies in the world and how an investor interested in responsible investing can benefit from the Nordic market.
The Nordics: institutional happiness and stable economies
The Nordics – Finland, Sweden, Denmark, Norway and Iceland – are relatively small countries by population but together make up the 12th largest economy in the world.
The Nordics are often ranked as the happiest countries in the world. The Nordic happiness may not be shown as an over joyous celebration of life (we all know the stereotype of the silent, stone-faced person of the North), as it is more of the institutional kind: appreciation of a stable economy and peaceful society, as well as a high level of equality and trust in the government.
The high happiness rankings may have a lot to do with the so-called “Nordic model”, a combination of social welfare and economic systems adopted by the region’s countries. The model matches market economy and economic efficiency with social benefits and income distribution. This reflects the mindset in which the common good often comes before individual needs.
But it’s not only the people who make it to the top in global rankings. One could say that Nordic companies are also among the “happiest” in the world: Nordics are the largest startup unicorn factory in the world and the region’s companies often rank high in competitiveness and innovation – and, especially, sustainability.
Sustainability is in the Nordic DNA
Even though Swedish Greta Thunberg has helped to put Nordic climate-mindedness in the limelight, sustainability has been an important part of the Nordic mindset for a much longer time.
Even the term “sustainable development” has Nordic roots: it was coined in the 1980s by the UN commission led by former Norwegian prime minister Gro Harlem Brundtland.
Sustainability is part of the DNA in Nordic companies, too. They have a long history of paying attention to the environmental, social and governance (ESG) aspects of their business. Whether it’s thanks to the historically strong bond with nature (bioeconomy is still one of the largest sectors in the region), the impact of the Nordic model or the local legislation putting a lot of emphasis on sustainable business practices, Nordic companies have become a forerunner in all things sustainable.
And again, we find Nordics on top of the lists: Boston Consulting Group lists several Nordic companies as leaders on social impact. And of the top 10 most responsible companies in the world in 2020, 4 hail from the Nordics – three of them making up the top three.
Share of companies in each quintile of TSI performance, by region (%)
Source: Boston Consulting Group
Sustainability attracts investors
While being comparatively small and often unrated, Nordic companies are the giants when it comes to sustainability. The companies included in the VINX Nordic Equity index have a higher ESG rating (AAA) than those of their counterparts in MSCI Europe (AA) and MSCI World (A).
And as research indicates that high ESG ratings can be linked to higher performance, the region with stable economies and sustainability-focused, innovative and well-faring companies is sure to attract investors, too.
There is a lot of talk about ESG becoming “the new normal” in investing. But for the Nordic companies and investment banks, it has been “the normal” almost for a decade. Already in the 1980s, Nordic asset managers started paying attention to socially responsible investing (SRI).
People, companies and governments in the region take pride in their strong knowhow of sustainability and ESG (however, if you haven’t heard about it, it’s probably because boasting about your achievements is often frowned upon in the Nordic cultures). So for an investor wanting to strengthen their potfolio with well-performing sustainable companies, it pays off to look north.