Savers can now choose funds that live up to tough sustainability requirements by looking for the Nordic Swan Ecolabel. In October 2017, the first certificates were distributed to twelve Swedish funds.
Nowadays, many industries are working systematically with sustainable development. The financial services sector plays an important role, directing capital flows and making investments that stimulate sustainability efforts. There are thousands of investment funds on the Nordic market, and choosing between them is a difficult task.
The Nordic Swan Ecolabel makes it easier for savers to find and invest in sustainable funds. The twelve first Swan-labelled funds were appointed in the fall of 2017.
Tough sustainability requirements
Swan labelling may mainly be associated with environmentally-conscious detergents, furniture and shampoos, but sustainable funds can now carry the label, too. SEB Hållbarhetsfond Sverige was one of the first funds to receive the label.
”It feels great and honorable. We didn’t have to make any changes to the fund to meet the Swan’s tough demands, so it’s a recognition for all the work we’ve done before”, says fund manager Caroline Forsberg.
A Swan-labelled fund must meet comprehensive sustainability requirements regarding, for example, which companies the fund managers can invest in and which companies they exclude. In addition, it is important that the fund managers and companies that the fund invests in report how they work with sustainability. The fund must exclude companies involved with controversial weapons, coal, gas, oil, uranium and nuclear weapons. There are also criteria on international norms, tobacco, alcohol, pornography, games, genetically modified crops, and conventional weapons.
”With the Nordic Swan Ecolabel, the savers are now being guided to choose funds that can handle tough sustainability requirements and that have the potential to influence entrepreneurship in a more sustainable direction. It is very gratifying that we have succeeded in committing so many financial actors on the journey towards a greener financial market,” says Ragnar Unge, CEO of Ecolabelling Sweden.
What is an ecolabelled fund?
The aim of Nordic Swan Ecolabelled funds is to use the power of capital and ownership to steer companies in a more sustainable direction. There are 25 investment criteria that an ecolabelled fund must abide by. The requirements list various ways a fund should act to influence companies: exclusion of unsustainable companies, inclusion of more sustainable ones, and acting in a transparent manner, with active ownership trough voting and dialogue. In practice, the fund has to comply with the following:
- The fund excludes investments in certain industries and companies that are particularly problematic from a sustainability point of view.
- The fund conducts an extensive ESG (Environmental, Social and Governance) analysis of its potential investments and prioritizes companies that are more sustainable.
- The fund discloses all of its holdings on a quarterly basis. In addition, the fund publishes an annual report on the sustainability performance of the fund.
- Nordic Ecolabelling encourages active ownership and rewards funds that engage with investee companies to move them in a more sustainable direction.
- Funds have to comply with the UCITS regulations and be registered for distribution in one or more of the Nordic countries, to be eligible. No more than 50 percent of their assets may be based on non-corporate credits such as government bonds.
The Nordic Swan Ecolabel does not imply that all of the fund’s companies are sustainable or without problems or challenges. The aim of the requirements is to make investments in a Nordic Ecolabelled fund move markets, industries and companies in a more sustainable direction. the Nordic Swan Ecolabel is no guarantee of future financial return, and does not evaluate financial risk.
A sustainability analysis has to be conducted
The fund should invest in companies that work actively with sustainability. To identify sustainable companies and operations is an important task for the fund manager. The Nordic Swan requires that at least 90 percent of the direct holdings in the fund’s portfolio have undergone an extensive ESG analysis.
ESG stands for ”Environmental Social Governance”; it means that a reputable service provider examines the sustainability policies, strategies and performance of the company in detail, and evaluates the risks and opportunities. At least half of a Swan-labelled fund’s holdings have to be in companies with strong ESG practices. Investments in clean technology such as renewable energy, water infrastructure and other environmental technology are promoted in the analysis. Caroline Forsberg says that SEB already had great emphasis on the sustainability analysis of SEB Hållbarhetsfond Sverige even before the nomination.
”We are managing the fund based on an investment process and strategy with a clear focus on the companies’ sustainability efforts. In addition to our requirements that the companies that the fund invests in have clear and integrated sustainability work with measurable goals, we continuously have dialogues with them about sustainability. Many companies appreciate that we show commitment and choose to discuss sustainability issues with them. An increased awareness regarding sustainability aspects is important and is likely to affect companies’ profitability in the future”, Caroline Forsberg says.
So far, the following funds have been Swan-labelled: Alfred Berg Hållbar Tillväxt Sverige, CB Save Earth Fund, Handelsbanken Hållbar Energi, SEB Hållbarhetsfond Sverige, Skandia Cancerfonden, Skandia Världsnaturfonden, Swedbank Robur Ethica Global, Swedbank Robur Ethica Global MEGA, Swedbank Robur Ethica Sverige, Swedbank Robur Ethica Sverige MEGA, Swedbank Robur Humanfond and Tundra Sustainable Frontier Fund.
The article was published in November 2017.