01-03-2021 14:21

It’s time to focus on the impact in impact investing

Nordea’s Head of Sustainable Finance Advisory talks to fintech startup Finuprise about the future of impact investing and the role of banks in driving sustainability.

Jacob Michaelsen, Head of Sustainable Finance Advisory, Nordea.

As interest in sustainable finance grows, Nordea’s Sustainable Finance Advisory team is in high demand. Team head Jacob Michaelsen recently spoke to fintech startup Finuprise about SFA’s work, impact investing and the role of banks in driving the transition to a more sustainable future. The following Q&A is adapted from this full-length interview with Finuprise.

Could you tell us about your position as head of Sustainable Finance Advisory at Nordea?

I’m responsible for a unit called Sustainable Finance Advisory, within Nordea’s investment bank. My colleagues and I are responsible for the broader advisory and discussion around sustainable finance with our clients, who tend to be the largest corporate and institutional clients. I’m not specifically focused on the investing side in detail. We have an asset manager at Nordea that works much more closely with that and with ESG integration on a daily basis. My team members’ coverage is on bonds and loans, and what we are looking at with regard to broader sustainability trends and developments, predominantly focused on larger companies.

We’re not environmental consultants, but we are specialists in sustainable finance and what that means for our clients. Clearly, it’s an area we are focused on and investing in. My colleagues and I are inundated with requests from clients. I expect that our team will grow with time as well.

These days people want to live more sustainably and make sure they invest their money in a sustainable way. Do you think that the change has to happen from the investor side, or should it be more on the investee side, or is it both?

I would say it’s both. It’s useful to tap into the discussions in the European community around sustainable finance, including the European Commission’s Sustainable Finance Action Plan. That has really been dictating a lot of what’s happened in the market. I would say that the Sustainable Finance Action Plan, announced in March 2018, is the most significant development within the financial markets on sustainability since the Paris Agreement in 2015. There are a lot of knock-on effects coming from the action plan. That obviously dictates to a large extent what we are focused on as well.

We have to start to work more fundamentally with the impact in impact investing.
Jacob Michaelsen, Head of Sustainable Finance Advisory, Nordea

On impact investing

How important is it for a typical impact investor to get competitive returns versus impact results?

Impact investing is quite a hot topic and can be interpreted in different ways. Some will use the term a bit more holistically, while others will be very dedicated to it, saying that we are impact investors and prioritise impact over financial returns. But most investors still do that with the argument that positive impact is also good for financial returns in the long run. It’s the constant discussion around so-called short termism versus long termism. There are a number of more dedicated investors focused on impact investing, and they tend to be a bit smaller in scale to integrate it fully.

Can you give a big-picture view of the current trends that will shape the future of impact investing?

When it comes to impact investing, there is a lot of vagueness around the term and many different actors approaching it from different perspectives. But in general, the Sustainable Finance Action Plan is an important development that will bring more detail to the discussion. That will help drive the broader discussions on sustainability in the financial markets and in investment decisions, which will invariably also support more “detailed” impact investing.

Impact investing requires you to have an understanding of what impact is. Impact typically refers to the non-financial, sustainable impact – the environmental or social impact. Before you can have a discussion on that, you need to understand what the impact is as well as the context. If you want to have an impact in biodiversity you can’t just buy any company that claims to have a strong focus on biodiversity. You actually need to understand what it means to have biodiversity? What does it mean that a company can impact and be a positive driver of biodiversity? Is impact the lack of negative consequences, or is it the additional positive consequence?

The problem with sustainability is that it’s always so context dependent. There are few areas with simple answers, because there’s always, “Have you considered this?” Take, for example, offshore windmill parks. Obviously renewable energy coming from windmill power is great, but what about the impacts on biodiversity? What about the impacts on the local environment with noise pollution? If you’ve ever been close to a big windmill, you know that it actually creates a lot of noise. These are all aspects that need to be better defined. We have to start to work more fundamentally with the impact in impact investing.

While sustainable finance may not solve climate change, we are certainly part of the solution.
Jacob Michaelsen, Head of Sustainable Finance Advisory, Nordea

On Covid-19 and the role of banks in driving sustainability

Considering the future of sustainable investing, how has the Covid-19 situation affected the sustainable investment market?

I think it’s fair to say that Covid has had a fundamental impact on the global economy. By reshaping the entire global agenda and economy, it has inevitably affected impact investing and sustainable investment. Social matters have also gained prominence as a result of the global crisis. More investors are starting to realize how they should incorporate that as well. I think in both the short and long term, the change will be positive for sustainable finance and impact investing. But again, there are so many moving parts to this discussion, and it’s difficult to isolate what’s due to Covid.

Do you think Nordea has a responsibility to drive change towards a sustainable future?

I think it’s quite an opportune moment for us to drive forward the market for sustainable finance. While sustainable finance may not solve climate change, we are certainly part of the solution. The financial market serves as oil in the machinery of the global economy. If we can support the transition by coming up with financial solutions and products that help channel money towards sustainable investments and mitigate the risk of these investments, then obviously that’s a welcome opportunity for us to be value adding and to play a role in society.

From that perspective, clearly as a commercial entity, we should welcome that with open arms. Given that our clients are also finding themselves in situations where they need support and input on these matters, we also have a commercial opportunity to drive this. Obviously, I’m biased in terms of what I work with and what my responsibilities are, but I think it’s fair to say that as Nordea we’re very excited about the developments and are humble and eager to continue driving the developments of that market.

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