18-05-2022 11:05

Neste – on a transformation journey

An oil company included in funds aiming to support more sustainable future might sound controversial. A Nordea fund manager and a ESG-analyst discuss the case of Neste and the company's net zero ambition.
Neste truck
Picture: Neste Oyj

Before plunging into the case itself, it makes sense to see how investors consider sustainability. It seems that from an investor perspective, it is becoming more common that company analysis considers not only financial metrics but also takes into account environmental, social and governance (ESG) factors. This is because company-specific and professionally analysed ESG information can provide broader insight about the risks and opportunities the company is and will be facing in the future.

Many roads to more sustainable investments

ESG investing has become very  popular in recent years, and there are many different  ways to consider related aspects. As ultimately investors need to cover their costs, it is obviously important to weigh those costs compared to the estimated benefits. In a more passive fund that includes hundreds of holdings, it for example makes sense to monitor ESG data on a more overall level and look at readymade overall ESG-ratings coming from data providers.

However some funds, like Nordea Stars Funds, approach the theme more actively. In the Stars Funds, ESG is seen as an elementary opportunity to add value both to the investment and society as well as the environment at large. Due to the win-win philosophy, active ESG work at Nordea is made an integral part of the investment process. In practice this means that portfolio managers work closely with dedicated ESG professionals, diving deep into companies and suggesting concrete actions that support both the company’s business, society and the environment in the long run. 

Climate change as a business catalyst

Now to the company in the intro. Neste is a Finnish company focusing on refining and marketing renewable diesel, aviation fuel and oil products. The conventional oil products are mostly sold within the Baltic Sea Area – about 60% within Finland, Sweden, Estonia, Latvia, Lithuania, Denmark and Poland – and the renewable diesel products are sold internationally, for example in Europe and North America.

The company is one of the largest investments in the Finnish Stars Fund and also included in the Nordic Stars Equity Fund, which both invest exclusively in companies that take environmental, social and governance matters seriously.

As the entire business of Neste is highly connected to climate change, current and future environmental risks and opportunities have been discussed with the company’s representatives. In addition, the company has been assessed from social and governance perspectives.

Waste collection is one of the biggest challenges faced by the circular economy and Neste has been building a global sourcing organisation for the last few years.

Marie Karlsson, fund manager, Nordea.

Marie Karlsson, you are managing the Finnish and Nordic Stars funds, please explain how can you have an oil refinery in funds aimed at supporting sustainable development?

"It all comes down to really understanding the company and its business and thinking about where it will be in the future. When it comes to Neste, the legacy from the traditional oil refinery business is still visible but today already 85% of its profits are generated in the renewable diesel segment."

"With the renewable diesel product, the company has one of the largest carbon handprints in our Nordic Investment universe, and thanks to its business, its clients are already able to cut their CO2 emissions by 11 million tonnes annually.  The company’s target is to nearly double this to 20 million tonnes by 2030."

"As the devastating impacts of global warming are becoming more evident than ever, higher climate ambitions and supportive regulation have pushed the demand for renewable fuels to rapid growth. This contributes to lowering global CO2 emissions and slowing down climate change and represents a great business opportunity for Neste!"

"The company is a frontrunner in the field and it is years ahead of its competition. Its most significant competitive advantages are the pre-treatment technology, visible in Neste being able to use more waste and residues as raw material. Waste collection is one of the biggest challenges faced by the circular economy and Neste has been building a global sourcing organisation for the last few years."

"Even if the company is aiming to lower its emissions and favour carbon neutral production, it still produces a substantial amount of traditional oil products. We hardly assign any value to this business and would prefer them separating the renewable from the conventional oil business."

By growing its production of renewable diesel, providing a fuel mix with lower emissions and eliminating its own emissions, Neste is actually a critical enabler of the net zero transition.

Katarzyna Salacinska, ESG-analyst, Nordea.

Katarzyna Salacinska, how do you as an experienced ESG-analyst see Neste from an environmental perspective?

"Well, in 2020 we, together with the portfolio management team, had multiple discussions with Neste. Our aim was to understand the company’s business model and climate strategy in detail and assess their actual impact on the environment and society at large. We also wanted to evaluate both the measures the company has already taken and those it is planning to take in the years to come to adjust its business to the alarming forecasts about global warming and growing demand for sustainable fuels."

"After thorough discussions and analysis, we actually came to the conclusion that Neste is not only motivated but also prepared to transform its business in time to avoid the worst outcomes of global warming. By growing its production of renewable diesel, providing a fuel mix with lower emissions and eliminating its own emissions, Neste is actually a critical enabler of the net zero transition."

"We need to fight climate change realistically, taking into account current and future societal needs. Even if the need for the green energy transition is unquestionable, it will not happen overnight – transitioning takes time. From the perspective of companies, it requires investing in new and often very costly technologies and knowhow while being able to run a profitable business on a daily basis. This can be challenging."

What are scope 1, 2 and 3 emissions?

Scope 1: direct emissions owned or controlled by the company, for example emissions generated in the manufacturing process of an industrial company.

Scope 2: indirect emissions from e.g. the electricity, heating or cooling the company purchases to be able to run the business.

Scope 3: all the other indirect emissions in the company’s value chain, such as emissions generated from product use, transportation and storage or end-of-life; for the Oil & Gas sector they represent over 90% of total emissions.

Can you explain a bit more? How does investing in Neste help, then?

"Our view is that Neste has a credible climate strategy to reduce its carbon footprint and we are seeing clear progress in the way it operates. The company is aiming to more than double its renewable fuel production and has already closed down and converted some of its more traditional operations."

"The company has recently announced a concrete target for Scope 3 emissions – to reduce the use phase emission intensity of sold products by 50% by 2040 (vs 2020) – and is committed to reaching the communicated goals."

"Moreover, it has created more partnerships for sustainable aviation fuel and renewable polymers and chemicals, made advancements in plastics recycling and launched an electric charging service for logistics companies in Finland."

"By investing in a motivated and climate-aware company like Neste, we can, as a longer term owner, use our expertise and help to steer its future business towards the green transition. For instance, the International Energy Agency estimates that biofuels need to quadruple by 2040 for aviation, logistics and chemicals to be able to meet the Paris climate agreement goal."

"Neste is critical for enabling the net-zero transition to other companies and industries throughout its value chain," Katarzyna concludes.

Engaging with Neste



  • Multiple meetings with Head of Sustainability at Neste
  • Assessing climate ambition and stressing the need for long term targets and including Scope 3 emissions
  • Neste allowed into ESG funds



  • 1st in Finland to introduce 100% renewable fuel oil from raw materials
  • Buys a refinery plant to scale up renewable raw material capacity
  • Achieves CDP leadership level and A- rating for climate action



  • Verifying progress and encouraging transparency
  • Asking to disclose the main contributors to the reduction of emissions intensity
  • Addressing concerns for the climate profile of feedstock


  • Closes crude oil refinery at Naantali and improves emissions profile of Porvoo.
  • Carbon intensity of sold products declines
  • Extends commitments and sets targets for Scope 3 emissions
  • Changes investment criteria and incentives to reflect ambitions



  • Expects the company targets to be audited
  • Monitoring of Neste’s efforts to reach carbon neutral production and grow biofuels continues
  • Follow-up on sustainable aviation fuel and plastics recycling capacity development
  • Next meeting Q2 2022 



  • Successfully concludes first series of processing trial runs at industrial scale with liquefied waste plastic
  • Introduces electric charging service for logistics companies in Finland
  • Expands partnerships within sustainable aviation fuel



Active ownership