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Responsible

investments
About funds, ethics and sustainability

Responsible
investments
About funds, ethics and sustainability

Swedish Investment Fund Association (www.fondbolagen.se)


Brasel Publishing (www.braselpublishing.se)
Copyright 2012 Swedish Investment Fund Association and the publisher
Publisher: Brasel Publishing
Layout and illustration: Jonas Rahm
Editor: sa Drakenberg
Photo: bambooinasia.com (p 26), Magnus Borelius (p 56), Victor Brott (p 40),
Howard Brundrett (p 52), Church of Sweden (p 54), Dan Coleman (p 42, 60 centre),
elvisphoto.com (p 34), Hkan Flank (p 12, 20, 61 bottom), Magnus Fond (p 50),
Handelsbanken (p 48), Handelsbanken/Bengt Evertsson (p 60 top),
Jann Lipka (p 14, 32, 61 top), Henrik Malmsten (p 16), Tina Nilsson (p 28),
Magnus sth (p 10, 44), SEB (p 61 centre), Skagen Fonder (p 60 bottom),
Jakob Srensen (p 24), Hanna Teleman (p 8, 22, 36),
Anna Thorbjrnsson (p 38), Vontobel AG (p 46)
Print: Elanders Flth & Hssler, Vrnamo 2012
ISBN 978-91-86697-06-8

Brasel Publishing

Contents
Foreword
Pia Nilsson, Swedish Investment Fund Association. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

D i ff e r e n t t y p e s o f f u n d s s am e r e s p o n s i b i l i t y ?
A sustainable approach, whatever the fund type
Josefine Ekros and Pr Lfving, DNB. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

T r e n d s a n d fact s
Managing sustainably and responsibly a natural development of active management
Anette P Andersson, SEB Fonder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Field trips around the world a practical means of exerting influence
Ylva Hannestad, Nordea Fonder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Dialogue and influence a cornerstone
Marianne Nilsson, Swedbank Robur. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Sustainable and responsible investments a background
Henrik Malmsten, Swesif . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Different sustainability concepts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
From niche to mainstream
Sasja Beslik, Nordea Fonder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Sustainability an opportunity in emerging market funds


Louise Hedberg, East Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
A sustainable approach should apply to index funds too
Liza Jonson, SPP Fonder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Can fixed income funds take sustainability criteria into account?
Anette P Andersson, SEB Fonder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Increased information intake positive for hedge funds
Erik Eidolf, Vontobel Stockholm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Different approaches a challenge for commodity funds
Magnus Strmer, Handelsbanken . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

T h e c o mpa n i e s a n d cap i ta l o w n e r s
T h e s av e r s
Savers prioritise ethics highly when choosing fund management companies
sa Drakenberg, Swedish Investment Fund Association . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Do good or expect a better return?
Jonas Nilsson, The Ume School of Business and Economics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Responsibility how does it affect performance?
Emma Sjstrm, Nuwa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Transparency helps investors make decisions
Axel Edling, The Ethical Council for Investment Fund Marketing (ENF). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Do companies take responsibility for sustainability work?


Nadine Viel Lamare, Frsta AP-fonden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Corporate social responsibility a key to sustainable success in global markets
Anders Nordstrm, ABB. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Capital owners with a conscience who help promote development
Gunnela Hahn, Church of Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Responsible investments investments in perpetuity
Magnus Borelius, City of Gothenburg. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

P R I a s a d r i v i n g f o rc e
ENFs statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
We are aided by ENFs statement
Anna Nilsson, Swedbank Robur . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Screening how it works
Ulrika Hasselgren, Ethix SRI Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Good ethics are a cornerstone of the entire investment fund sector
Lena Falk, Swedish Investment Fund Association . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

The UNs six principles drive development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58


Applying PRI in practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Foreword
The subject of this book is the involvement of fund
management companies in sustainability issues. Every
fund management company is the subject of wideranging demands for good ethics and a sound approach,
and the imposition of special environmental and social
issue criteria is becoming more and more the norm.

It began with special ethical funds that exclude companies with links to
such sectors as weapons, alcohol and tobacco. The trend has now shifted,

Pia Nilsson

and greater emphasis is being placed on positive selection criteria when


making investment decisions. Fund management companies are also

CEO of the Swedish Investment

using their contacts to exert an influence over the companies in which

Fund Association

they invest.
Fund managers are keen to take their share of the responsibility. The
sector as a whole wants to be characterised by transparency and by tak
ing a long-term responsible approach. Fund saving is very suitable for
long-term savings plans, such as regular monthly saving, and funds are
a particularly popular alternative when it comes to saving for a pension.
Fund managers are legally obliged to work in the best interests of their
unit holders, which means achieving the best possible return in line with the

environmental, energy and climate issues, and on human rights, work envi-

funds investment orientation and any special criteria. It is vital that savers

ronment issues, anti-corruption measures and a high standard of business

are provided with easily accessible information in order to understand what

ethics. These are not issues of black and white and it can be difficult to

characterises individual funds and in order to facilitate their choice of fund.

draw the boundaries between what is and is not acceptable. Dialogue and

2012 has seen the introduction of the EUs new KIIDs for funds.

transparency are the tools everyone can use in their efforts to bring about

It is interesting to see consumer research indicating that savers motives

The Swedish Investment Fund Association has decided to encourage

and sustainability orientation. Some savers believe that doing so increases

investor education. The Association is a member of SWESIF (the Swedish

their chances of a higher return, while others are prepared to waive return

Sustainable Investment Forum) and is a Network Supporter of the UN

for the sake of doing good. The research also shows, however, that there is

Principles for Responsible Investments (PRI). This book, which has been

no generally applicable link between either higher or lower yields for funds

produced through an industry-wide cooperative approach, contains more

with specific responsibility and sustainability criteria.

information about both SWESIF and PRI and we hope that it will not only

Responsible investments mean commitment on the part of the fund man

RESPONSIBLE INVESTMENTS

improvements and help inspire innovation.

differ when it comes to choosing funds that have an explicit responsibility

agement companies to the companies in which they invest. The focus is on

Dialogue and
transparency are
the tools everyone
can use in their
efforts to bring
about improvements and help inspire innovation.

make a constructive contribution towards increasing know-how, but also


stimulate a fruitful discussion.

RESPONSIBLE INVESTMENTS

T r e n d s a n d fact s

Managing sustainably
and responsibly
a natural development of active management
What does managing responsibly and sustainably mean
in practice? And what does it mean for the information you seek from the companies? These are common
questions put to me by companies and colleagues alike.
Sustainability seems to be perceived by many people as
being a difficult and unclear concept. Personally,
I believe its about common sense. Running a company
in a responsible and sustainable way means maintaining good control over costs and conducting good risk
management. Saving resources and being aware of the

Anette P Andersson
Investment Fund Manager,

risks you face is something on which every company


management team should be focusing.

SEB Fonder

Companies with high quality sustainability work are often also well-run from

another example. These two examples may be somewhat extreme, but if these

a financial viewpoint. Saving resources such as energy, water and materials

companies had had better risk control, this might have been possible to avoid.

can be converted directly into cold hard cash. Good risk control allows these

So what are we looking for in companies when we attempt to build up

companies to avoid costly adaptations to legal requirements and means they

a picture of the way in which they conduct their operations? The most im-

are better positioned to handle increased costs such as taxes, customs duties

portant factor by far is that the company management is motivational and

and transportation costs. Relevant and active processing of business intel-

committed. They must be able to present their strategies for resource utilisa-

ligence means the company is able to react more quickly and deal more ef-

tion, HR policy, product development and management. We want them to

ficiently with changes in customer preferences and demand.

comply with the UN Global Compact (see page 18), which includes the most

BP is one example of a company that lacked good risk awareness, and

fundamental principles for corporate social responsibility. We would also

which has paid for that lack. The disastrous oil spill in the Gulf of Mexico in

like to see them report their emissions to the Carbon Disclosure Project an

2010 was not only an ecological catastrophe of unfathomable scale; it also

independent, non-profitmaking organisation that is working to reduce green-

forced the company into expensive legal proceedings. The USD 20 billion or

house gas emissions and to promote sustainable water usage by companies

so that the company is planning to pay out in the form of compensation is lost

and cities.

profit. Siemens, which was convicted of corruption and fined EUR 2 billion is

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RESPONSIBLE INVESTMENTS

Saving resources such


as energy, water and
materials can be converted directly into
cold hard cash.

If you cant measure it, you cant improve it.

11

RESPONSIBLE INVESTMENTS

T r e n d s a n d fact s

Field trips around the world


a practical means of exerting influence

An understanding of the commercial terms of the


companies in which we at Nordea Fonder invest is
one of the most important factors in determining
whether we will be able to influence a company to
move in a positive direction. Field trips are a way for
us to gain a better understanding of the companies
operations, which is why we visit several companies
in various locations worldwide every year, in an
attempt to influence them to improve the way they
work with environmental and social issues.

Ylva Hannestad
ESG analyst, Nordea Fonder

In 2011, the team from Nordea that work with responsible investments visited Cambodia, for example, in order to meet with some of
Hennes & Mauritz suppliers. The visit was triggered by a number
of reports of substandard working conditions amongst H&Ms suppliers in
Cambodia. It had, for example, been reported that there had been several
cases of employees fainting at work at one of the suppliers.
We discovered, during our visit, that the local investigations into the incidents were incomplete. Some reports suggested exhaustion as a reason
for the employees having fainted, while others suggested that the incidents
were due to mass hysteria. Our investigation clearly showed that there are a

An understanding of the commercial terms of the companies


in which we at Nordea Fonder invest is one of the most
important factors in determining whether we will be able
to influence a company to move in a positive direction.

number of issues that need to be rectified in order to improve the employees


working conditions. We recommended a number of specific measures that

12

RESPONSIBLE INVESTMENTS

the company should take, including improving the air conditioning system

Both Nordea and H&M were happy with the open and positive attitude on

in the plant to ensure the temperature there remained at a reasonable level,

the part of the factorys Chinese management team. The factory immediately

and improving access to drinking water during working hours. The company

implemented measures with regard to the availability of drinking water and

also needed to find a better way of managing working hours and overtime

began working with a longer term programme of further improvements to

during peak seasons.

working conditions.

13

RESPONSIBLE INVESTMENTS

T r e n d s a n d fact s

Dialogue and influence


a cornerstone
One of the trends that has become increasingly pronounced
over the past decade has seen financial institutions, such as
fund management companies, being expected to take an
actively responsible ownership role in the companies in

Capital structure and dividend policy, pub


lic takeover bids, share-based incentive pro
grammes and sustainability issues are other areas
in which we take an active ownership role. As
major shareholders, we have a natural platform

which they invest. Todays institutional owners are major

from which to impose demands with regard to

shareholders in listed companies, and customers expect the

the way in which the companies work with the

people they have chosen to manage their savings to assume


overall responsibility for their management duties. Which
includes a responsible approach to ownership issues.

environment, human rights, anti-corruption and


business ethics, and we make these demands for
all of our funds. During our dialogues with the
companies, we stress the Boards responsibility

As major shareholders, we have


a natural platform for imposing
demands with regard to the way
in which the companies work with
the environment, human rights,
anti-corruption and business
ethics, and we make these
demands for all of our funds.

for these issues and the need for clear documen-

Marianne Nilsson
Corporate Governance
Manager, Swedbank Robur

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RESPONSIBLE INVESTMENTS

There is also a growing realisation on the part of asset managers that this

tation and steering systems detailing the companies concrete measures to make improvements in these areas.

helps improve value creation within the companies. Here at Swedbank Robur,

We support a trend where major owners act as responsible owners because

we largely conduct our work as active owners in the run up to and during

it benefits our investment fund savers. We are also keen to promote the

company general meetings, but we also conduct ongoing dialogues with

maximum possible transparency and public confidence in the stock market.

Boards of Directors and company management teams and we work in part-

In Sweden alone, we vote at around 150 general meetings every year and we

nership with other owners. Important ownership issues include, for example,

also sit on over 60 nomination committees. Over the years, we have built up

the work surrounding the nomination committee. The nomination committee

an organisation that coordinates and takes decisions on matters relating to

is a preparatory body that works in the run up to general meetings to come

our ownership activities and we use both internal and external resources, e.g.

up with suggestions with regard to the election of Board Members and Audi-

by having independent Board Members for the fund management company.

tors, amongst other things. In the USA and UK, for example, the nomination

Our ownership policy describes the way in which we exercise our corporate

committee is an offshoot of the Board, while in Sweden, the work of the com-

governance role and the demands we make of the companies in which we

mittee is conducted outside the Board. The nomination process has become

invest. The ownership policy is available in full on our website, where we also

increasingly structured, with Board evaluations and requirement profiles for

provide up to date information on our ongoing ownership and sustainability

new Board Members. The balance between independent and non-indepen-

work. Sustainability issues are a component of the investment process for

dent Members is assessed, and it is also important that the Board contains a

all of our funds, and our sustainability analysts are continuously updating

wide range of expertise that is in line with the requirements of the company

our management teams on the sustainability work of the companies in ques-

in question. The composition of the Board must also ensure that the benefits

tion as well as evaluating our financial counterparties with regard to their

that diversity provides are achieved.

sustainability services.

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RESPONSIBLE INVESTMENTS

T r e n d s a n d fact s

Sustainable and responsible


investments
a background
It has become increasingly common over the last
decade for managers to incorporate sustainable and
responsible criteria into their investment model. Some
researchers believe, however, that sustainable and
responsible investments began way back in the 17th
century with the Quakers (who were known for being
early opponents of slavery, for being peace campaign
ers, and for having a non-hierarchical organisation).
Others believe that the roots of this type of investment
began in the 1980s with the anti-apartheid movement.

Henrik Malmsten
Chairman of SWESIF

Strong religious values often played a part in investment decisions be


fore the new millennium began, and there was a desire for the investors own ethical standpoints to be part of the investment process. The
new millennium, however, has seen an increasing shift from overall ethical
investments to a primary focus on sustainable and responsible investments.
Sustainable and responsible investments are not, first and foremost, a

The positive selection process, i.e. one that involves actively selecting the

question of a save the world mentality: rather the aim is to achieve the

companies in which one wishes to invest on a range of different criteria

best possible return on the investment. The key factor is the way in which

achieved its breakthrough in the early part of this century. The method is

this return is achieved. Sustainable and responsible investments do not auto-

primarily implemented in one of two ways: using the best in class method

matically result in either a higher or a lower return. It is, first and foremost,

involves choosing to invest in those companies which, within their own sec-

a question of a more complete risk analysis, in that those companies that

tors, have achieved the greatest success in introducing a sustainable metho

operate in accordance with the principles for sustainable development also

dology. It can also involve basing ones investment strategy on a particular

seem to manage their financial undertakings to a high standard. This, in turn,

theme, such as renewable energy.

reduces the risks.

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RESPONSIBLE INVESTMENTS

Influencing companies through ones ownership is another way to ap-

There are several approaches to making sustainable and responsible invest-

proach sustainable and responsible investment. A number of major institutio-

ments, the most common of which are opting out or opting in certain

nal investors have increased their involvement in this type of approach, and

investment objects. Opting out means avoiding investing in companies oper

hence enhanced its effectiveness. The most modern fund managers nowadays

ating in the armaments, tobacco and alcohol sectors, for example. This was

have integrated a sustainable and responsible methodology into the entire

the method most commonly used before the year 2000.

organisations investment and decision-making processes.

The most modern


fund managers now
adays have integrated
a sustainable and
responsible methodology into the entire
organisations investment and decisionmaking processes.

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RESPONSIBLE INVESTMENTS

T r e n d s a n d fact s

Different sustainability concepts

Different management methods


opt out, opt in and influence

The flora of concepts in the field of sustainable and responsible invest-

The management focus when it came to sus-

that promote responsible business methods

ments can seem like a jungle. The path through that jungle for those in-

tainable and responsible investments was

and/or produce products or services in a sus-

previously on opting out, i.e. on having a

tainable way. The investor can also choose to

vestors who want to focus on a sustainable and responsible methodology

negative selection process that involved de-

influence the company through active own

have, however, become clearer with the establishment of a number of

selecting companies or sectors from ones

ership with the aim of promoting responsible

international norms and standards. See below for an explanation of the

portfolio on the basis of certain specific crite-

enterprise and in order to secure the return

ria. These days, opting in is also more com-

on the investment in the longer term. Find

mon, i.e. having a positive selection process

out more about the selection method known

in which the investor looks for companies

as screening on pages 3435.

most common concepts.

SRI, Sustainable and Responsible Investments. Sustainability refers to long-term sustainable development that takes into account future generations. Responsibility refers to issues
such as human rights, labor and environment.
CSR, Corporate Social Responsibility. The idea of CSR is that a company has obligations to
stakeholders other than its owners. The company is, in other words, managed in a way that
takes into consideration environmental and social responsibilities, alongside the financial
targets. CSR can facilitate responsible investments, i.e. investments where the choice of
investment object is determined by the investors own criteria or values, beyond expectations of financial returns.
ESG, Environmental, Social and Governance issues comprises criteria that relate to environmental responsibility, social responsibility and corporate governance. There has been an
increasing focus on ESG in recent years.

Swesif and PRI


SWESIF (the Swedish Sustainable Investment

investors who are working to implement the

Forum) was founded in 2003 by a number

six principles of sustainable and responsible

of major institutions with the aim of boost

investments (see page 59). Many Swedish

ing investors know-how when it came to

and international capital owners and institu-

sustainable and responsible investments.

tional investors have also signed up to PRIs

SWESIF has been working in partnership

principles and are working to implement

with the UNs PRI (Principles for Respon-

the methodology into their management

sible Investments) initiative for a number of

practices and organisation.

years now. PRI is a network of international

Global Compact. Just over 6,000 companies worldwide comply with the United Nations
Global Compact (UNGC), which is a UN initiative designed to encourage companies to
take on board and implement sustainable and responsible methodologies as part of their
operations. There are also a number of OECD guidelines.

18

The Sustainability Profile


In 2011, SWESIF launched its Sustainability

straightforward information on the ways in

GRI, The Global Reporting Initiative, is a non-profitmaking organisation that has compiled

Profile tool, which is aimed at fund savers

which funds apply sustainability criteria to their

a relevant and usable standard for sustainability reporting. Over 3,000 companies now

and the public alike and which is designed

management. Read more on pages 3233.

comply with this reporting standard.

to enable savers to obtain easy-to-grasp,

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T r e n d s a n d fact s

From niche to
mainstream
The next stage in responsible investments will be
the development of more integrated products
in which relevant environmental aspects, social
aspects and business ethics aspects will be integrated into every fund, right from the start.

It is clear, from the reviews of ethical funds that have been carried out, that todays funds do not match up to the expectations
of the outside world. There seems, for example, to be a general
perception that ethical funds automatically prohibit investments

Sasja Beslik
CEO of Nordea Fonder

in fossil fuels, which is not the case.


The type of funds usually referred to as ethical funds can, in
our opinion, be divided into five groups:
Group 1, which came first, uses de-selection of companies or
sectors negative screening, in other words.
Group 2, which came along a little later, does not exclude sectors; rather

methods alone, i.e. excluding companies, they have no power to influence.

they choose those companies that are best in class from a financial, envi-

Considerable potential exists for influencing the companies that make up

ronmental and social viewpoint.

the portfolio, even if one is a relatively small owner. It is not the size of the

Group 3 comprises theme funds. A climate fund, for example, chooses companies that show special attention to climate concerns or which have pro Group 4 comprises funds that integrate environmental aspects and social

visit companies, we leave behind us knowledge and ideas for ways in which

aspects into ordinate funds. This is the type of product that will gain even

the business can develop, but we also leave behind clear action plans and

greater ground in future because not only do they actively help generate a

follow up on them.

invest, for example, in companies that use fossil fuels.

RESPONSIBLE INVESTMENTS

ations and the challenges they face.


The influence must always be results-orientated. When we meet with and

Group 5 invests exclusively in sustainable companies and hence do not

holding that makes the difference; it is the knowledge of the companies oper

ducts that benefit the climate, such as environmental technology companies.

good return, they are actively helping to build a more sustainable world.

20

If fund management companies are to continue employing the Group 1

It is not the size of


the holding that
makes the difference;
it is the knowledge
of the companies
operations and the
challenges they face.

Finally, I believe that the number of explicitly ethical funds will decline in
future and that they will be integrated into the normal management process,
becoming part of the standard range of funds offered to savers.

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T h e s av e r s

Savers prioritise ethics


highly when choosing fund
management companies
The ethical aspect is an important factor for savers when

Range of ethical funds important when choosing fund management company

choosing fund management companies. All savers place


great value on fund management companies offering high

Very important 5

quality funds that are orientated towards ethical, environmental and responsible investments, assigning an average

rating of four to this factor on a scale of one to five, where


one is unimportant and five is very important.

These are the results of a comprehensive survey of Swedes aged between 18

and 79 conducted by TNS Sifo Prospera on behalf of the Swedish Investment


Fund Association in the spring of 2012.

sa Drakenberg
Head of Communications,

fering ethical funds than do men, with women giving this factor a rating of

the Swedish Investment

4.3 on the scale, in contrast to mens rating of 3.7. There is no substantial

Fund Association

Women place greater importance on the fund management company of-

difference between the different age groups, but the ethical factor is slightly
more important in the most senior age group (aged 6379) than in the

Unimportant

All

Women

Men
Source: TNS Sifo Prospera 2012.

youngest (aged 1842).


When selecting a fund, ethical and environmental considerations in the
fund is the third most important aspect that the saver takes into account
following fees and risk.
The survey also asked respondents to rate the importance of a fund
management company being an active owner of the companies in
which the funds invest. This might take the form of attending
general meetings of the company or of maintaining an ongoing
dialogue with the companies on a range of issues. Almost six
out of every ten respondents stated that it is important. Men
placed a slightly higher importance on this factor than did

All savers place great value on fund management


companies offering high quality funds that are
orientated towards ethical, environmental and
responsible investments.

women.

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T h e s av e r s

Do good or expect a
better return?
Theres nothing particularly surprising about the fact that

ing for these different reasons. Several

consumers are becoming increasingly interested in respon-

studies have shown that investment fund

sible investments. Investments do, admittedly, differ to some


extent from normal purchase decisions, but funds are still
a consumer product that changes in line with its custom

choosing to invest ethically (e.g. Nilsson,


2009, Derwall et al, 2011).
Some people choose these funds be-

ers preferences. Ethics and the environment have become

cause they have a genuine commitment

increasingly important to many people and it is only natural

to ethical and environmental issues. This

that this societal trend has also had an impact on the invest-

group is keen to influence companies

ment fund market.

Jonas Nilsson

savers have widely differing reasons for

behaviour or to boycott companies they


regard as ethically questionable. These
savers differ substantially from those who

Rather than focusing on


whether ethical fund consumers invest in order to
do good or because they
want a better return, it is
more relevant to ask who
is investing for these
different reasons.

As ESG factors (see info box) have become ever more important within the

invest in ethical funds primarily because

of Business and Economics,

financial sector, there has been a growing interest on the part of the research

they think it is a good deal from a finan-

and SIRP (Sustainable Investment

community in ethical investments, particularly perhaps in light of the fact that

cial viewpoint. Here, ethical funds are an

ethical considerations could, to some extent, be said to run counter to certain

alternative for savers who believe that investments in sustainable companies

traditional conceptions of the proper preferences for an investor. One ex-

are a good way of achieving a healthy financial return. For these savers,

ample of a question under discussion is what makes fund savers choose to

in other words, an investment in an ethical fund does not necessarily have

invest in ethical funds? Is it simply in order to make the world a better place,

anything to do with ethical commitment.

researcher at the Ume School

Research Platform)

or do financial returns also play a part in influencing savers choices?


Research focusing on fund consumers motivations for investing in ethical
funds shows that both of these factors are relevant. The research also shows,
however, that the question is, to some extent, wrongly phrased. Rather than

Online
The full text of Jonas Nilssons thesis can be found at www.ub.umu.se.
Search for Consumer decision making in a complex environment.

focusing on whether ethical fund consumers invest in order to do good or


because they want a better return, it is more relevant to ask who is invest
What does ESG mean?
ESG stands for Environment, Social, Governance, i.e. questions relating to
environmental concerns, social concerns and corporate governance.

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RESPONSIBLE INVESTMENTS

The authors recommended reading


Derwall, J et al (2011), A tale of values-driven and profit-seeking social
investors. Journal of Banking & Finance, 35(8), p 21372147.
Nilsson, J (2009), Segmenting socially responsible mutual fund investors:
The influence of financial return and social responsibility. International
Journal of Bank Marketing, 27(1), p 531.

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RESPONSIBLE INVESTMENTS

T h e s av e r s

Responsibility how does it


affect performance?
Does it pay to invest responsibly? A great many researchers
have spent a great deal of time and effort attempting to
answer this question, and the short answer is that the results
point in different directions. It is not possible to say, there
fore, that the return on ethical funds is either better or
worse than that on other funds.

The fact that responsible investments can be defined in so many


different ways also makes the pro
cess something like comparing
apples and pears: while some funds
avoid weapons and alcohol, others
focus on environmental work or
working conditions amongst the
companys suppliers in low-pay

Emma Sjstrm
PhD in Economics and
Founder of the knowledge
agency NUWA

It is possible to find support for both beliefs: that funds and indices that take

countries. The returns from this

environmental and social responsibilities into account perform better than

profusion of funds can, of course,

their conventional equivalents and that they perform worse. Many research

differ.

ers, however, seem to have found that it makes no difference to the riskadjusted return.

One overall conclusion might


be that trying to generalise about

The fact that responsible investments can be defined in so many


different ways also makes the
process something like comparing apples and pears: while
some funds avoid weapons and
alcohol, others focus on environ
mental work or working conditions amongst the companys
suppliers in low-pay countries.

This view is confirmed by, amongst other things, the overview study I have

responsible investments on the ba-

conducted and which involved reviewing all of the academic research in the

sis of individual studies is tricky,

area published between 2008 and 2010. My research shows that of twenty

and statements of the Its proven

one studies, one third found that responsible investments did not result in

sustainable funds perform better/worse! kind are, therefore, simply not

either a higher or a lower return. Almost the same number of studies show

credible.

a mixed result within the same field of investigation, e.g. that it varies over

A better approach would be to redirect our spotlights beam. Rather than

time, between products or between markets. There are also five studies which

fixating on the returns from an historic perspective, we should be asking,

concluded that responsible investments yield a higher return than conventio-

Why are the returns higher or lower in different cases? Only then would

nal equivalents and three showing the opposite.

the answers become truly interesting.

It is no real surprise that the research has yielded such different results. The
studies use data from different markets and different periods of time, and
examine different types of products. Researchers may use different calibration methods and the rigour of their studies may also vary. Whether a fund
(responsible or not) has performed better than a comparison fund can also
be affected by factors other than those that can be directly linked to environmental and social responsibility a fact not always considered in the studies.

26

RESPONSIBLE INVESTMENTS

Online
Emma Sjstrm (2011), The performance of socially responsible investment: A review of scholarly studies published 20082010. Stockholm
School of Economics; Nuwa AB.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1948169.

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T h e s av e r s

Transparency helps investors


make decisions
Savers need a transparent presentation of what a specifically

ample, clearly specify the sectors or products that the fund has deselected. The

responsible investment policy means to enable them to

ENF has established a minimum requirement that states that a maximum of

decide for themselves whether it lives up to their expec


tations. This presupposes not only fully detailed product
descriptions, but checks and balances that ensure the fund
actually follows its stated investment policy.

A professional
operation must,
of course, respect
current conventions
with regard to
human rights, along
with international
norms intended to
protect the climate
and the environment.

five per cent of the turnover of a company in which the fund invests may come
from a sector that the fund management company claims to avoid. It has been
suggested, from time to time, that this level should be lowered and a zero toler
ance approach instituted. The ENF came to the conclusion that this would be
an empty gesture, rather than a realistic requirement. It is currently virtually
impossible to establish without any shadow of a doubt that none of the turn

Many savers are looking for investments that can help promote a good performance, not only with regard to their personal savings, but from a wider
perspective as well: one that includes global environmental and fairness issues, for example. The range of funds now being marketed as particularly

Axel Edling
Chairman of the Ethical

responsible are a response to this desire on the part of savers.


ENFs 2009 guidelines focus on the marketing of these funds. Good prac-

Council for Investment Fund

tice offers a natural starting point in this respect: all marketing must be true

Marketing (ENF)

and reliable and must provide sufficient information to give savers a reasonable basis on which to make an informed decision. This is particularly critical
when the products are, by their nature, difficult to assess, which is the case
for investment fund savings. It is also vital for the industrys own credibility
amongst consumers that the information lives up to stringent standards.
Not only is a fully detailed product description vital, there must also be
a system of monitoring ensuing adherence to the funds investment policy.
Transparency on these matters is key, not only before the purchase decision is
taken, but during the subsequent relationship between funds and savers. One

question that we discussed in ENF during our work on the guideline was
whether the concept ethical should be defined. We decided that it would
be inappropriate to try and do so. The concept is, admittedly, imprecise, and
there is a risk that it will be used in a sweeping way that paves the way to false
expectations on the part of savers. But it is simply not possible to establish
once and for all exactly how high the ethical bar should be placed. It is more
appropriate, in this context, for the deciding factor to be savers preferences.
One of the core points of the ENF guidelines is that when a fund manage
ment companys marketing stresses that a particular fund is orientated
towards environmental or social considerations, for example, it must also
make it absolutely clear on what basis it makes this claim. It must, for ex-

28

RESPONSIBLE INVESTMENTS

over in the companies in which the fund invests comes from certain deselected
sectors. We have also assumed that enabling consumers to base their choices
on improved transparency with regard to the companies work in such areas as
ethics and the environment will lead the trend towards zero tolerance.
The use of the ethical label also seems to have declined slightly in recent
years in favour of the more concrete and more comprehensible one of a
focus on responsible investments, the environment, sustainable development,
and so on. This trend is, in my opinion, a good one, not least when one bears
in mind the question marks that can otherwise arise with regard to funds that
are not launched as ethical ones. A professional operation must, of course,
respect current conventions with regard to human rights, along with international norms intended to protect the climate and the environment.
The range of funds offered and the way in which savers behave is character
ised by a dynamic. Issues in relation to responsible investments are attracting
a lot of attention, both here in Sweden and internationally. The ENF has
announced that the guidelines will probably need reviewing in a few years
time, and we are keen to hear about the experiences of both consumers and the
sector, and to learn about their experiences.

The Ethical Council for Investment Fund Marketing (ENF)


ENF is an independent council whose aim is to monitor the
compliance with applicable regulations by fund management
companies in their information provision and marketing. These
regulations include the Swedish Investment Fund Associations
Guidelines for information and marketing etc. by fund management companies. The Council can
act independently and comment on matters of principle. Individuals, companies and authorities
can also report cases to the Council.

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T h e s av e r s

ENFs guideline statement on the


marketing of ethical funds
Way back in 2004, the ENF commented on the marketing of ethical
funds at the request of the Consumer Ombudsman. By 2009, a desire
had been expressed for this statement to be updated in line with
developments and progress and with changes in the concept picture.
The ENF guideline statement can be summarised as follows:

 he ENF is of the opinion that the following criteria must be met in order
T
for a fund to be marketed as ethical or described using another similar
term that states or implies that the fund focuses on investments on the
basis of specific environmental, social or other similar considerations.
The fund management company shall have a clearly defined process
for selecting its investments. This requirement applies whether the fund
applies positive or negative criteria in its selection process, or whether
the company works by attempting to influence the companies in which
it invests to move in the desired direction.
The fund management company shall have a function that continuously
monitors and ensures compliance with and adherence to the selection
process.
When investments are made on the basis of negative selection criteria,
a maximum of five per cent of the turnover in the companies in which
investments are made, or of the corporate group of which the company
is part, may refer to operations that do not live up to the special requirements established by the fund management company.

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RESPONSIBLE INVESTMENTS

The fund management company shall, over and above the information
on the funds investment orientation that must be contained in its fund
provisions, KIID and information brochures, also present details of the
following in a clear and easily accessible manner:
the companys investment policy for the fund, including
information on selection criteria and turnover limits, and
the companys selection process for the fund and the way
in which the process is monitored and ensured.
The information shall be provided on the companys website, but it must
also always be available in printed form.
The fund management company shall provide a detailed account in its
annual report and Q2 reports of the way in which it has complied with
the investment policy with regard to the orientation of investments based
on special considerations. The fund management company shall also,
to the extent that it has deviated from this policy, specify the measures
taken as a result thereof.

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T h e s av e r s

We are aided by ENFs


statement
Sustainability funds have been a part of Swedbank Roburs

processes on our website and in the

product range for the last thirty years now. The 1990s saw

funds KIID and information broc-

the emergence of an overgrown jungle of ethical funds


in the Swedish market. The wide variation in the ways in

hures. We complement this information with concrete examples of


our sustainability analyses of com-

which ethical criteria were applied, however, created con-

panies and corporate dialogues in

fusion amongst customers and also generated credibility

newsletters and annual reports, etc.

problems for professional sustainability funds.

We were also involved in the


production of a standardised information sheet, known as a sustaina-

Anna Nilsson
Head of Swedbank Roburs
sustainability analysis

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RESPONSIBLE INVESTMENTS

The sustainability profile


is aimed at fund savers
and interested members
of the public, but can
also be a useful tool
for advisors.

It was not until eight years ago that a guideline statement was issued by

bility profile, in cooperation with

the Ethical Council for Investment Fund Marketing (ENF) on the ways in

SWESIF (the Swedish Sustainable

which the sector was allowed to market funds as ethical or sustainable.

Investment Forum). This informa-

Swedbank Robur believes that the fact that there are now far fewer funds

tion sheet can be used by funds to show how their management takes envi-

on the market with imprecise sustainability criteria is a direct result of this

ronmental, social and business ethics-related issues into account.

ENF guideline statement.

The sustainability profile is aimed at fund savers and interested members

The core point of the guideline statement from ENF is the requirement for

of the public, but can also be a useful tool for advisors. The sustainability

the fund management company to have a well-defined selection process and

profile should be seen as a complement to the normal key investor informa-

for its external communication regarding the criteria, selection process and

tion document and is designed to facilitate comparisons of sustainability

results to be clear. The nature of sustainability funds can vary widely some,

criteria between different funds from different players.

for example, only invest in companies that perform the best sustainability

One year after its introduction, the sustainability profile was being used

work within their industry and that do not manufacture weapons or to-

by all of the major players in the Swedish market, and SWESIF is working

bacco so it is vital that customers can see what every fund stands for and

on how it can be refined and how the use of and familiarity with the profile

hence be able to choose the funds that are the best match for their personal

could be further increased. We are taking an active role in this work because

preferences. Here at Swedbank Robur, we provide information about our

it is important that the work on sustainability funds is transparent, and

sustainability criteria, our analysis resources, and our analysis and selection

because we want to make it easier for savers to choose sustainability funds.

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T h e s av e r s

Screening how it works


Screening is a relatively common concept in many settings,
e.g. in organisational management, recruiting and health
care. Screening can entail taking a broad overview or
focusing on certain specific issues.

Screening is also a common concept when talking about responsible investments, strategies for sustainability, or ethical and environmental funds.

Another form of screening involves making a positive


selection of companies adjudged to perform well in
terms of e.g. environmental and social responsibility,
and who are successfully managing their risks and
opportunities relating to environmental and social
responsibility.

Screening, in this context, refers to a method by which one systematically

Ulrika Hasselgren
ceo of Ethix SRI Advisors

searches within a given population (e.g. a funds holdings) for a certain factor

relating to environmental and social responsibility. The systematic search in

which may have an effect on the holding (the company) or the fund. Screen-

these cases is done directly via the company concerned as well as through

ing is an attempt to identify the incident or risk factor at as early a stage as

available data from a variety of relevant sources.

possible in order to enable a possible problem to be prevented or resolved.

Whatever the criteria chosen, the screening results in the identification of a

Screening, in other words, entails on the basis of a funds holdings and

number of companies. The fund manager can then either engage in a dialogue

of certain fixed criteria, such as the environment and human rights actively

with the companies, with the aim of influencing them in the areas that have

seeking to identify companies which fail, in one way or another, to live up to

been identified as problematic or risky, or can elect not to invest in those

these criteria.

companies that have been identified as problematic or risky, or actively select

The systematic search is carried out in a variety of ways, depending on

companies which are considered as best in their respective industries.

the criteria set for the screening process. If environmental and human rights

The first fund to develop a screening method based on international norms

criteria are set on the basis of UN conventions and international agreements,

for the environment and human rights was Sjunde AP-fonden, which was

for example, a systematic search is made of numerous open sources, such as

tasked by Swedens Parliament, way back in 2000, with taking ethical and

UN organisations, authorities, expert organisations, voluntary organisations,

environmental considerations into account in their management without

and the media. The information obtained, when combined with information

thereby foregoing the requirement for a high rate of return.

obtained from companies and industry organisations, forms the basis for
evaluating a problem or a companys involvement in a particular situation.
If the criteria refer, instead, to sectors or products such as alcohol, tobacco
and armaments the systematic search is carried out within the company,
through their annual reports, and through industry and expert organisations.
Another form of screening involves making a positive selection of companies adjudged to perform well in terms of e.g. environmental and social re-

Ethix SRI Advisors


provides, amongst other things, systematic monitoring of over 6,000 companies
worldwide on the basis of set criteria with regard to such areas as the environment,
human rights, working conditions and anti-corruption work.

sponsibility, and who are successfully managing their risks and opportunities

34

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T h e s av e r s

Good ethics are a cornerstone of


the entire investment fund sector
This booklet is about fund management that pays particular

matter is, of course, simplified if the funds

attention to factors such as ethics, the environment and social

specific investment orientation has stated that

issues. But good ethics are definitely a matter for all fund
management companies in that all fund management must by

environmental or social aspects shall be taken


into account in the management operations.
At the same time, it is clear that ethical con-

law be carried out in the collective best interests of the unit

siderations that have no negative effect on

holders.

returns can never be deemed to contravene


the unit holders collective best interests. It
will probably become increasingly clear that

It will probably become increasingly


clear that it is not a question of how
expensive it is to analyse companies
on the basis of sustainable principles,
but rather one of how expensive it can
be not to analyse them in this way.

Creating and maintaining confidence in the investment fund market is an

it is not a question of how expensive it is to

important task for the industry as a whole. That is why, in addition to the

analyse companies on the basis of sustainable principles, but rather one of

various legislative and regulatory provisions, there has been a system of self-

how expensive it can be not to analyse them in this way.

regulation for many years now that is designed to summarise the principles

Transparency and good information are amongst the most important tools

that should govern the way in which fund operations are conducted in Swe-

in ensuring sound fund management operations, and the Swedish Invest-

the Swedish Investment

den. The Swedish Investment Fund Associations own Swedish Code of Con-

ment Fund Associations guidelines consequently address the ways in which

Fund Association

duct for Fund Management Companies details good practice in the Swedish

information shall be provided by fund management companies who market

investment fund market, and compliance with the Code is mandatory for all

funds which have an investment orientation that places special emphasis on

of the Associations member companies. One of the fundamental principles of

environmental, social or other similar considerations.

Lena Falk
Deputy General Counsel,

the Code is that fund management operations shall be sound and shall be cha-

Taking a clear stance in favour of fundamental ethical considerations such

racterised by high integrity. The Code also requires all those who represent

as human rights or environmental concerns is important if public confidence

fund management companies to act in an ethically acceptable way. Ethical

in all forms of investment fund saving is to be maintained. The combination

positions shall be part of every fund management companys operations, and

of legislation with the Associations Code and guidelines guarantees a high

there is also a legislative requirement for fund management companies to act

standard and an industry that acknowledges its responsibility for a high stan-

in an honourable, fair and professional manner at all times.

dard of ethics in the investment fund sector and thereby also generates the

The Swedish Investment Fund Association has also instituted a number


of guidelines in parallel with the Code of Conduct. The Associations gui-

preconditions for an investment fund market in which fundamental principles


of responsibility and sustainability permeate every investment.

delines for investment fund managers as shareholders, for example, stresses


the fund management companys obligation to endeavour to achieve the

Online

best possible return and to act in the collective best interests of the unit

The Swedish Investment Fund Associations Code of Conduct and


guidelines can be viewed at www.fondbolagen.se.

holders. To what extent does this formulation offer the scope for taking
other aspects into account in addition to the specific one of returns? The

36

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37

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D i ff e r e n t t y p e s o f f u n d s s am e r e s p o n s i b i l i t y ?

A sustainable approach,
whatever the fund type
Equity funds are probably the funds that most savers
associate with sustainable investments. There are
good reasons why this is the case in that as shareholders, one is responsible for the way in which the
companys operations are conducted.

Twenty five years ago, Swedish and other Nordic companies largely
operated exclusively in their domestic markets, where laws were set
in accordance with clear, democratic rules of the game. This meant
it was relatively easy to manage a Nordic equity fund, simply by
avoiding companies with undesirable products.
Globalisation has exposed Nordic companies to new risks: their
manufacturing and subcontractors are nowadays increasingly locat
ed in developing countries where the parent companies encounter
the sort of problems and challenges that characterise these markets,
such as low economic standards and undemocratic governance. Companies

dedicated specific resources to this end. The funds managers also actively

worldwide are also facing an ever-accelerating ecological crisis, particularly

attempt to reduce risks by engaging in dialogues with the companies to

in the form of the threat of climate change, which means that those compa-

discuss the sort of measures they could take. The international scope of the

nies who want to be part of a sustainable future must change their produc-

Nordic companies operations means that these dialogues can range all the

tion methods and their energy consumption. Businesses are increasingly

way from working conditions in Bangladesh to forestry management and

realising that they must review a products entire lifecycle, and even indirect

biological diversity in Uruguay. Seeing a companys growth potential has

emission sources, such as transport, are important.

always been a central component of our share portfolio management, and

The investment fund sector has had to change in line with these external
changes. Managers of sustainable equity funds must assess a multitude
of new factors as part of their investment decisions nowadays. Does the

Sustainability risks often pose very real financial risks for the companies as

Sustainability Analysts, DNB

company have systems in place that prevent its involvement in breaches of

well, and it is just as important for the manager to have control over these

human rights and labour rights? What is the companys attitude towards

risks in ordinary equity funds as in specifically ethical ones. To this end, we

corruption? What are the risks involved in investing in a company that is

have instituted an ethical platform that establishes a minimum level for the

overly reliant on fossil fuels?

sustainability risks that we will tolerate in our funds, irrespective of whether

We work actively to analyse and evaluate sustainability risks and have

38

nowadays this increasingly requires the managers to become experts in such

Josefine Ekros and


Pr Lfving

RESPONSIBLE INVESTMENTS

fields as enhanced energy efficiency, health trends and water purification.

Businesses are increas


ingly realising that they
must review a products
entire lifecycle, and in
direct emission sources,
such as transport, are
important.

the funds are officially designated as ethical ones.

39

RESPONSIBLE INVESTMENTS

D i ff e r e n t t y p e s o f f u n d s s am e r e s p o n s i b i l i t y ?

Sustainability an opportunity
in emerging market funds
East Capital, which focuses on emerging markets
in Eastern Europe, Russia and China, is working
actively to integrate an analysis of material and
relevant factors in connection with the environment, social conditions and corporate governance
(ESG) into its investment process.

We have a duty to our customers, the unit holders, to understand


how different sustainability issues affect the companies from a
risk and profitability perspective, and regard doing so as a com-

Louise Hedberg
Director Ownership Issues,
East Capital

ponent of generating the optimum return over time.


Sustainability issues are not, as yet, as high on the agenda
in the markets in which we operate as they are in the Nordic
region, but this does not prevent us from raising them. We visit
around 1,200 companies every year, and during these visits we
discuss the ways in which the companies interpret challenges
and opportunities in relation to sustainability issues. What would stricter
local or international environmental legislation mean for them? Can the
operations be made less resource-intensive?
Rather than excluding companies that have made insufficient progress in
their sustainability work, East Capital prefers to try and influence the company to initiate changes and to build up its readiness to address such issues.
The challenges faced in our markets are substantial. We must be realistic in
our dialogues with the portfolio companies, and focus on concrete measures
that strengthen their position and value, such as improving transparency or
encouraging the companies that face the biggest environmental challenges to
attack them in a strategically well thought-out way.

40

RESPONSIBLE INVESTMENTS

Rather than excluding companies that


have made insufficient progress in their
sustainability work, East Capital prefers to
try and influence the company to initiate
changes and to build up its readiness to
address such issues.

41

RESPONSIBLE INVESTMENTS

D i ff e r e n t t y p e s o f f u n d s s am e r e s p o n s i b i l i t y ?

A sustainable approach should


apply to index funds too
Many asset managers regard the application of
sustainability screening methods to index funds
as problematic because it necessitates the exclusion of companies that fail to meet the required
standards. Excluding a company makes it harder
for the fund to match its index and means that it
may not, under current regulations, be classified
as an index fund.*

There are, however, ways around this problem and it is actu-

Liza Jonson
CEO of SPP Fonder

ally possible to match and generate a return corresponding to


a particular index, even if certain shares have been excluded as
a result of screening. This was the approach adopted by SPP
Fonder.
All SPP Fonder investments meet the Groups sustainability
standards. We are firm in our belief that it is the sustainable
companies that are tomorrows winners and that generate the
best returns. The inclusion of index funds in the sustainability screening
process was, therefore, never in doubt for us, the challenges posed thereby
notwithstanding.
The adjustment process was carried out in a number of stages during

Tomorrows winners will be the companies that


actively adapt in order to meet tomorrows
challenges in a sustainable world.

which the biggest challenge involved ensuring functional optimisation meth


ods that enable the index to be tracked even though certain companies had

management and index management, it is imperative that the industry takes

been screened out. The fund provisions were then revised and the funds

notice and comes up with new or adjusted products. Tomorrows winners will

categorisation changed from index funds to equity funds while management

be the companies that actively adapt in order to meet tomorrows challenges

continued to be index tracking. Once the new fund provisions and the new

in a sustainable world. And it is these companies in which our industry as a

fund names were approved, we informed our customers.

whole should invest if we are to secure long-term returns for our customers.

A sustainable approach must, naturally, apply to all funds, whatever their


type. As customers demand greater sustainability in the context both of active

42

RESPONSIBLE INVESTMENTS

*It is possible to track a screened index and still categorise the funds as index funds. The disadvantage
lies in the fact that doing so makes it harder to achieve comparability between different funds.

43

RESPONSIBLE INVESTMENTS

D i ff e r e n t t y p e s o f f u n d s s am e r e s p o n s i b i l i t y ?

Can fixed income funds


take sustainability criteria
into account?
One difference between the management of fixed
income funds and equity funds is that fixed income
funds usually invest in government securities. And
when investing in government securities, very little
or no consideration is given to sustainability issues.

Traditional ratings institutes, such as Moodys or Standard &


Poors, take no account of sustainability criteria when assessing
creditworthiness, and there are only a few players who consid
er sustainability when investing in government securities. When

Anette P Andersson
INVESTMENT Fund Manager,
SEB Fonder

they do, the assessment often entails a political evaluation of how


ethical the country is, rather than its repayment capability.
Investment funds can, to the extent that they invest in corporate bonds, apply the same strategy as that used for equity
funds. Those who invest in corporate bonds most commonly use
negative screening, and hence avoid investments in certain industries, such as tobacco, armaments or gambling, or in companies
that breach international conventions. The same arguments can, of course,
be applied to corporate bonds as during equity analysis, namely that the
quality of a companys sustainability work affects that companys repayment
capability.

Green bonds
In 2008, the World Bank and SEB launched World Bank Green Bonds.
These green bonds are issued to finance projects with a sustainability and
developmental perspective, in order to meet the investors requirements.
Online: http://sustainableperspectives.sebgroup.com/en/Stories/SEBpartners-with-World-Bank-to-create-Green-Bond/.

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The same arguments can, of course, be


applied to corporate bonds as during
equity analysis, namely that the quality
of a companys sustainability work affects
that companys repayment capability.

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D i ff e r e n t t y p e s o f f u n d s s am e r e s p o n s i b i l i t y ?

Increased information intake


positive for hedge funds
With the ever-growing impact of responsible investments,
the principles that govern them are now spreading to
alternative investments, of which hedge funds are a key
component.

The UN-supported PRI initiative has established a working group for


responsible investments and hedge funds with the aim of increasing
acceptance of responsible investments within the hedge fund sector.
No two hedge funds are exactly alike and it is hence almost impossible for investors to pre-define the way in which responsible investment
principles can and should be implemented with regard to hedge funds.

Erik Eidolf
CEO of Vontobel Stockholm

What is required instead is that the investor analyses how each specific
hedge fund is managed and how, based on the results of this analysis,
ESG criteria can best be integrated. PRI proposes that investors, precisely
as with traditional funds, break down the management into component
parts, such as the type of assets to which the hedge funds are exposed and the
way in which this exposure can be managed responsibly. This may include
analysis of corporate governance, of the underlying instruments used, of
the way in which the portfolio is constructed, and the hedge fund strategies
implemented, etc.

Investing responsibly requires investors to take on board additional


information, over and above the purely financial, and this should
generate improved conditions for well-founded investment decisions.

For private investors, however, it is currently difficult to find hedge funds


where the principles of responsible investment are specifically implemented.
Given the global interest in responsible investments in general, however, there

What is a hedge fund?

is every likelihood that the hedge fund sector will increasingly be examining

Hedge funds are usually defined as funds whose goal is to generate a


positive return, whatever direction the market may move in. Achieving this
requires that the manager has more liberal investment rules which means,
in practice, that hedge funds are allowed to use more instruments and
investment techniques, such as short selling, derivative instruments, and
borrowing. Short selling borrowing a share that one then sells in the hope
of buying it back at a lower price allows the investor to hedge the portfolio
against falls in the market.

the potential for introducing these principles.


Investing responsibly requires investors to take on board additional information, over and above the purely financial, and this should generate im
proved conditions for well-founded investment decisions. This is something
that most people find easy to accept, creating a solid basis for a growing
interest in responsible investments, even amongst hedge funds.

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D i ff e r e n t t y p e s o f f u n d s s am e r e s p o n s i b i l i t y ?

Different approaches a
challenge for commodity funds
Interest in raw materials as an investment object has
increased amongst institutional and private investors
alike in recent years. Raw materials offer several
advantages they spread the risk in a portfolio and
they work well in conjunction with inflation.

Financial investments in raw materials are made via derivatives,


often in the futures market. This market exists primarily to enable
producers and buyers of various raw materials to reduce the effect
of price fluctuations. The futures market also gives investors an

Magnus Strmer
Raw Materials Director,
Handelsbanken

opportunity to understand how raw materials prices fluctuate.


It is claimed, by some, that even if the supply of and demand
for the underlying physical raw material ultimately determines
its price, investments in futures create so-called pricing bubbles.
Agricultural products are a particularly sensitive area and one in
which opinions differ. As a result, this area has been the subject of numerous
studies. The studies have not, however, been able to provide unambiguous
proof either way.
The principles for responsible investments in raw materials are currently
not as highly developed and established as those for investments in equities,
for example, but Handelsbanken is working to establish industry-wide principles on how to approach raw materials investments in order to ensure a
responsible approach. Some progress has been made, and the PRI initiative
recommends, amongst other things, sticking to markets where the contracts
are liquid, not taking physical delivery, and that investors work in partnership

Agricultural products are a


particularly sensitive area and
one in which opinions differ.

with marketplaces and other market players to ensure greater transparency


and better governance.
One desirable development for the future would be the introduction of
standardised contracts and raw materials indices that take ESG issues into
consideration.

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T h e c o mpa n i e s a n d cap i ta l o w n e r s

Do companies take responsibility


for sustainability work?
The formal and informal demands for companies to take sus-

discussed at Board level in these companies too, even if the Board is less com-

tainability issues into account in their operations are growing

mitted to these issues than is the case in the first group.

ever fiercer in todays globalised world. The UNs guideline


principles for enterprise and human rights, presented in 2011

Two thirds of the companies have, in other words, a systematic programme


of sustainability work, and we have noticed a positive trend in this respect
between 2009 and 2011.

by the UNs Special Envoy for Human Rights, is a recent exam

Approximately one third of these companies, however, have unfortuna-

ple of how these demands are becoming ever-more stringent.

tely still not implemented a systematic programme of sustainability work.


These companies only have certain guidelines in place and the integration

Approximately 14 per
cent of the companies see working with
sustainability
issues as a compe
titive advantage.

of sustainability issues into their commercial operations is either rare or has

Nadine Viel Lamare


Sustainability Analyst, Frsta

In the light of these growing demands, it is reasonable to expect Swedish com-

only just begun. The Boards responsibility for sustainability issues in these

panies to work actively with sustainability issues as part of their operations.

companies is limited.

But are they actually doing so? Are they working with sustainability issues in

One of the most important conclusions to be drawn from the 2011 survey

a systematic way, and if so, who takes responsibility for sustainability issues

is, therefore, that there is a need for an increased dialogue within trade and

within the company? In an attempt to find answers to these questions, the

industry in order to generate the preconditions for companies to learn from

Sustainable value generation investor initiative (see info box) have twice

one another. We, as investors and owners, are keen to participate in this

for the Hllbart vrdeskapan-

(once in 2009 and once in 2011) sent questionnaires to the 100 biggest com-

process in order to help generate even stronger and even more sustainable

de [Sustainable value genera-

panies on the Stockholm Stock Exchange.

value growth.

AP-fonden, and spokesperson

tion] ownership initiative

The conclusion that can be drawn from these surveys is that there are
substantial differences in ambition and results from one company to another,
with three groups clearly distinguishable.
In the first group (approximately 14 per cent of the companies), the Board
takes extensive responsibility for sustainability issues, and these issues are an
integral part of their commercial operations. They see working with sustaina
bility issues as a competitive advantage, a means not only of minimising
risks but of cutting costs and boosting sales, and of attracting and retaining
employees. They also communicate their work in detail.

The Hllbart vrdeskapande [Sustainable value generation] ownership initiative


The investors behind the Sustainable value generation initiative are Andra APfonden, DNB, Fjrde AP-fonden, Folksam, Frsta AP-fonden, Handelsbanken
Asset Management, Meta Asset Management, Nordea, SEB, Skandia Liv, SPP,
Swedbank Robur, the Church of Sweden and Tredje AP-fonden.
Collectively, they represent assets under management that equates to
approximately SEK 5,000 billion, SEK 650 billion of which is invested in
companies listed on the NASDAQ OMX Stockholm exchange.

In the second group (just over half of the companies), a systematic pro
gramme of sustainability work has been launched but is less advanced.
The companies have guidelines for many areas in place and have begun
implementing them, but there is still some work to be done before the sustainability work is fully integrated into the commercial operations. These
companies also report their work to some extent. Sustainability issues are

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RESPONSIBLE INVESTMENTS

Online
Find out more about the results of the survey and interviews with the
Chairpersons of the Boards of several listed companies at
www.hallbartvardeskapande.se. In Swedish.

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RESPONSIBLE INVESTMENTS

T h e c o mpa n i e s a n d cap i ta l o w n e r s
B o l ag e n

Corporate social responsibility


a key to sustainable success in global markets

ABB is a global company operating in around 100


different countries. It is important to us that our
customers and other stakeholders appreciate not just
our products and solutions, but the way we conduct
ourselves as employers, suppliers, customers and
members of society wherever we operate.

Responsibility, respect and decisiveness are three key words that we use,
here at ABB, to describe our commercial principles. These three simple

Anders Nordstrm
Group Advisor on
sustainability issues, ABB

words are backed up by extensive guidelines, action programmes and


management systems that help us operate in accordance with our principles in markets across the world.
A Code of Conduct, strict business ethics rules, an environmental
policy, a social policy, a human rights policy, and health and safety
regulations are a few examples of the extensive support structures that
are built into our operations. Most are well-established within the company: approximately 100,000 employees have, for example, received train-

ABB has zero tolerance of substandard business ethics and we have an

ing on our Code of Conduct, which is available in 45 different languages.

extensive programme designed to ensure compliance. We support and en-

Almost 1,000 people around the world are working with our environmental

courage everyone who suspects improprieties have occurred to report them,

management and health and safety programmes. Other components were

whether they involve breaches of the Code of Conduct, suspected corrup-

added at a later date and are still being developed. We have, for example, a

tion, breaches of human rights, or environmental damage. We also have

training programme that addresses corporate responsibility for human rights

ombudsmen to whom the employees can turn in confidence to discuss con-

and where the goal is to have trained senior executives in our twelve most

duct-related issues. The ombudsmen can give advice on how to proceed in

important manufacturing countries by the end of 2012. Our approach is one

a variety of cases. ABBs integrity programme currently has 63 ombudsmen

of continuous improvement.

in 47 countries.

We set all of our goals and measure our environmental performance, social

Our sustainability work and our integrity programme make us a bet-

parameters and health and safety indicators on the basis of the findings from

ter and a stronger company, and we are convinced that they help ensure

around 360 plants around the world. The data are aggregated in a global

sustainable success for ABB in our global markets.

ABBs integrity
programme currently
has 63 ombudsmen
in 47 countries.

database, analysed, followed up, and reported on in our Sustainability Report.

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T h e c o mpa n i e s a n d cap i ta l o w n e r s

Capital owners with a conscience


who help promote development
The Church of Sweden is keen to be involved in and to take
responsibility for the world in which we live, and that includes the financial assets we manage. We have seen that
long-term sustainable investments also yield good financial

It has become slightly easier, in recent


years, to find managers who live up to our
requirements. In the past, we had to customise the share portfolios that were to
be managed, but now, we are increasingly

rewards, and when we invest in listed companies, we are

coming across funds which are also open

also keen to contribute to the sustainable development of

for other investors.

this world. We do this in a number of ways.

Active owners
Engaging in an active dialogue with our

It is consequently
vital that we identify
managers that can
follow our stringent
financial policy.

Choose the right company

managers and others in the finance sector

One way is to choose companies that manufacture products and services that

enables us to help generate an increased understanding of how a longer term

Gunnela Hahn

are of benefit to mankind, and on the environmental front, therefore, we have

approach can be realised in day-to-day asset management work. The sec-

Head of Responsible

invested in renewable energy and in water purifying technology, for example.

tor has long been run by short-term reward structures something that is a

Investments,

On the social side, we own shares in companies that provide mortgages to

substantial hindrance for us and others who are keen to see long-term value

those on low incomes in developing countries, for example.

generation within companies. Some of our managers have introduced longer

the Church of Sweden

Companies can also work actively on their environmental impact, working

term bonus systems. We are actively involved in a number of networks for in-

conditions and human rights throughout their organisation, and this includes

vestors, both in Sweden and internationally, in order to persuade more people

working with their suppliers. One of the fund managers in whose funds we

to integrate sustainability issues into their investment decisions.

invest has its own stock market index for very large companies and for which

We also engage in discussions with several of the companies in which we

companies have to qualify. This places pressure on the mega corps to work

invest and have adopted a number of issues as themes over the past year, e.g.

actively with the promotion of more sustainable development.

how companies should act in countries suffering armed conflict and how
peoples integrity and freedom of speech online can be protected.

Choose the right manager

Last winter, we visited pharmaceutical manufacturers in India. Many phar-

We have no asset managers of our own and it is consequently vital that we

maceutical companies have outsourced aspects of their production to suppli-

identify managers that can follow our stringent financial policy. The policy

ers in developing countries in order to cut costs. But since water purification

states what we want to invest in and what we want to avoid. We will avoid,

sometimes fails it has resulted in environmental damage and in pharmaceu-

for example, investing in companies that manufacture weapons and tobacco.

tical products ending up in the environment. This has led to the occurrence

We are also restrictive when it comes to investments in companies that extract

of antibiotic-resistant bacteria. When this is the case, we are keen to see the

fossil energy sources such as coal and oil. We are keen to help solve climate

companies in which we have holdings demand efficient water purification

change issues and consequently prefer companies that offer renewable and

systems in its supply chain and help provide solutions.

intelligent energy solutions.

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T h e c o mpa n i e s a n d cap i ta l o w n e r s

Responsible investments
investments in perpetuity
The City of Gothenburg manages about one hundred foun

or gambling are prohibited. The

dations, the oldest of which is more than one hundred years

companies must also comply with

old. The purpose of the foundations was determined by


its founders and may, for example, be to award money for
studies, to those in financial need, or for the beautification

a number of international conventions, and in order to ensure compliance with these guidelines and
requirements, we have mandated

of the city. These foundations have a combined total capital

an external manager to manage the

of SEK 750 million and yield a combined annual dividend of

assets, approximately two thirds of

SEK 2025 million.

which are invested in funds. The


portfolios are rebalanced, i.e. the
composition of the portfolios is re-

The foundations were established in perpetuity and are intended to generate

Magnus Borelius
Chief Financial Officer,
City of Gothenburg

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RESPONSIBLE INVESTMENTS

viewed, annually, during January.

returns for many years to come, in order to fulfil the aims of the donor found

We welcome the more active role

ers. Managing these foundations, as the City has undertaken to do, is a huge

now being played by the manager

responsibility and sustainable and responsible investments are, therefore, an

when it comes to opting in, opting

important area that we address when reviewing and evaluating the ways in

out and influence for the part of our

which the foundations assets have been invested. The work has been carried

assets that are invested in shares.

out in stages and is an area in which our focus is on continuous development.

The ability to show that we are

The goal of the asset management operations is to maintain the real capital

working actively with sustainable

People should be able to rely,


when they decide to donate
money to an existing foundation, or to found a new one,
on the money being managed
professionally, both with regard
to the foundations objective
and with regard to outside
world considerations.

income over time and, at the same time, to ensure the dividend level remains

investment issues is important to us for a number of reasons: firstly, we are

consistent. The foundations capital is invested in shares and interest-bearing

keen to play our part in influencing the creation of a better society, and se-

securities with three asset managers. The capital is managed via a fixed in-

condly, we want to be able to show potential donors that we accept active

come fund, an equity fund and a portfolio containing both shares and fixed

responsibility for these issues. People should be able to rely, when they decide

income securities. The primary focus of the funds is on value growth, while

to donate money to an existing foundation, or to found a new one, on the

the mixed mandate focuses on dividends. The investments are made in ac-

money being managed professionally, both with regard to the foundations

cordance with guidelines laid down by the City Council and include ethical

objective and with regard to outside world considerations. From an invest-

guidelines, in addition to a purely financial dimension. Investments in com-

ments in perpetuity viewpoint, therefore, working to promote responsible

panies whose operations involve armaments, alcohol, tobacco, pornography

investments at all times is the natural path for us to take.

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P R I a s a d r i v i n g f o rc e

The UNs six principles


drive development
Half of the Swedish Investment Fund
Associations member companies have
signed up to the UNs Principles for
Responsible Investments initiative,
known as PRI. These principles comprise
six points reflecting the belief that environmental and social issues, and corporate governance (ESG) are important in
terms of the investments performance.
Which means they must, of necessity,
also be an important component of the
management approach.

The principles provide a voluntary framework that


enables all investors to incorporate ESG issues into
their decision-making process and the practical exercise of their fiduciary duties. PRI is a network of international investors
who work together with a view to putting the six principles into practice.
Just over one thousand institutional investors, asset managers and industry
stakeholders have signed up to the principles since they were launched in
2005. The Swedish Investment Fund Association is also a Network Supporter
of the UN initiative PRI in order to help promote increased public awareness
and know-how.

The UNs six principles for responsible investments

1. We will incorporate ESG issues into investment analysis and decision-making
processes.
2. We will be active owners and incorporate ESG issues into our ownership policies
and practices.
3. We will seek appropriate disclosure on ESG issues by the entities in which we invest.
4. We will promote acceptance and implementation of the Principles within the
investment industry.
5. We will work together to enhance our effectiveness in implementing the Principles.
6. We will each report on our activities and progress towards implementing the
Principles.
Online: www.unpri.org

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P R I a s a d r i v i n g f o rc e

Applying PRI in practice


Anna Nilsson, Swedbank Robur

Signing up to PRI means taking a clear stand and saying that sustainability and corporate
governance issues are important to our operations, both as managers and as owners, and
that they are important in terms of the funds long-term returns. Signing up to PRI has

We asked some of the Swedish Investment Fund Association member


companies who have signed up to the UNs PRI initiative what it has
meant for them.

meant, amongst other things, that we have extended the cooperation between our sus
tainability analysts and our managers, with the managers receiving structured reporting
on the companies sustainability work. We have also conducted several corporate dialogues in other countries and introduced a system of ongoing evaluation of our broker
contacts, based on their sustainability services.

Elisabet Jamal Bergstrm, Handelsbanken Asset Management

For Handelsbanken, PRI is a valuable framework within which we can work with responsible investments. Our ambition is to integrate ESG issues into every aspect of our manage

Peter Dahlgren, SEB

ment work. We believe that the active ownership principle can achieve a major break

If customers have entrusted you with the management of their assets, the management

through with so many capital owners and managers opting to work in accordance with PRI.

must be conducted in a responsible and sustainable way. The UNs PRI initiative makes

We are also hoping that PRI will give us additional opportunities to work with other players

our view of environmental aspects, social issues and corporate governance questions

in the responsible investments sphere.

clear both to our customers and to ourselves. By working actively with these issues, we
reduce risks and make the most of business opportunities. We also know that these issues
are important in terms of a companys profitability in the longer term, and consequently

Liza Jonson, SPP Fonder/Storebrand

The annual reporting to PRI has given Storebrand a greater insight into what we are good at
and where we could improve. The reporting has also given us a better grasp of the concrete

integrate them into our investment processes. PRI also gives us access to a global platform
that enables cooperation with investors all over the world on a variety of different issues
which is a huge plus.

improvements that have resulted from the hundreds of contacts we have with companies
every year. PRI has also made it easier for more investors to get together and influence
companies on individual issues. Our experience indicates that this sort of cooperation yields
good results.

Ylva Hannestad, Nordea Fonder

We have chosen, in line with the UNs PRI initiative, to create a policy that encompasses
all of our funds, and are hence endeavouring to integrate relevant environmental, social
and corporate governance issues into all of our investment decisions. We have gained acJonas A Eriksson, Skagen Fonder

Ethics have always been an important component of our analysis process when we choose
companies in which to invest, so signing up to the UNs PRI initiative has had no impact
on our investment philosophy. We have monitored the UNs work in this sphere since 2006
and signed up in the autumn of 2012 because we believe that doing so is in the best inter
ests of our unit holders. We have been working with a number of external suppliers of
information in this field for a long time, in order to ensure the best possible basis for our

cess to an extensive network of other managers and capital owners, facilitating cooperation between investors. We have, for example, been part of a cooperative project that saw
Nordea, along with other investors, writing to 86 companies, urging them to improve
their reporting on environmental, social and corporate governance issues. PRI has also
enabled us to be involved in and influence the development of responsible investments at
international level.

decision-making.

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A book about funds, ethics and


responsibility to future generations
Responsible investments are about achieving long-term sustainable development that takes future generations into account. Human rights, working
conditions and the environment are all the sort of considerations that ethical
funds take into account when managing their funds. But what does the term,
responsible investments, actually mean? What can you, as a saver, expect when
you buy units in a fund that takes these sorts of considerations into account?
Does it cost more, or can it actually be profitable? Is it even possible to
define the term, ethical, and shouldnt all funds be ethical, really?
This book examines these concepts and allows fund managers, investors,
researchers and the companies themselves to talk about them in easily
accessible texts. Together, they paint a picture of a long-term approach in
transition from being an exception to being the rule. Responsible investments are regarded by many as a natural development of active management,
and it will probably not be long before it is not so much a question of how
expensive it is to analyse companies on the basis of sustainability principles,
but rather one of how expensive it might prove not to analyse them in this way.
The path to sustainable investments will differ from one fund manager to
another. Should they choose to invest in companies that act as good role
models or should they actively deselect companies that fail to meet the
managers criteria? Or should managers, in their capacity as owners,
attempt to influence the company to act in a certain way? Three different
approaches but all with the same objective.
Understanding these arguments is important for anyone who wants to know
what an ethical fund actually is, how it works, and the things to bear in mind
if you are to make a sustainable and responsible investment.

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