We interview Sasja Beslik, Head of Sustainable Finance at Nordea, about the work and increased focus within sustainable finance and sustainability at Nordea.
Why has the initiative been taken now? Was it prompted by retail investors, politicians or something else? What difference can Nordea make, and do we have a responsibility to act? Sasja describes the development in the field over the recent years and why we are facing a breakthrough now.
For someone who doesn’t work directly with sustainability, it may be difficult to understand the difference between the concepts 'corporate social responsibility' and 'sustainable finance'. How would you distinguish them?
If we start with 'corporate social responsibility', also known as CSR (corporate social responsibility), it began to take shape during the 1970s. During the Ronald Reagan and Margaret Thatcher administrations, a wave of deregulation shrank the public sectors in the US and the UK. As the private sector started representing a greater share of the economy, expectations grew for companies to take more responsibility for the impact they had on society. At first, this was called 'Corporate Citizenship' and later became CSR. Today, the concept is often just called CR (corporate responsibility). CR is a wide concept and at Nordea we call it 'sustainability'.
By definition, sustainability, or CR, applies to every way in which a company affects society through its operations. It can be anything from how it interacts with suppliers and employees, to the amount of paper or energy it consumes. In Nordea's case, sustainability is about corporate responsibility and issues related to the bank.
Sustainable Finance at Nordea determines issues that are related to customers, products and offerings in the fields of investments, lending and advice; hence we integrate sustainability into our work. Within Asset Management, we have a dedicated responsible investment team working with ESG issues for Nordea's funds.
Responsible investment as a concept emerged as a sub-category within CSR in the late 1980s. It started in Scandinavia, especially in Sweden, and in the Netherlands. From the beginning, it was based on ethics – how could financial capital be used in an ethical manner? The reason it started in Sweden and the Netherlands was the demands that had arisen from the retail investor market, which was much more mature regarding ethical investments than in other countries. In an ethical analysis, all companies that do not meet the predefined ethical standards are removed from the portfolio. This is also called 'negative screening'. At the time, ethical investments were criticised for being more expensive than alternative investments and also for underperforming. Just as the word 'social' had a negative connotation in CSR, the word 'ethics' had a negative connotation in ethical investments, as it was associated more with, for instance, religion.
After 2000, there was a big change. First, people started to talk about 'sustainable finance' rather than 'ethical investment', but above all, the analysis was modified. Instead of excluding companies defined as 'bad', the new approach allowed people to invest in any company they liked as long as all investments were based on a few critical criteria. Not only was the potential return to be considered, but also environmental, social and governance aspects (ESG). Hence, put simply, the largest difference between the ethical and the ESG analysis is that the former entails all the 'bad' companies being removed, while the latter means only investing in 'good' companies that are performing at an acceptable ESG standard.
At Nordea, we offer both ethical and ESG investments purely because some of our customers request ethical alternatives, especially certain institutions and foundations which are forced to make such investments in order to comply with their investment policies. I would happily only work with ESG investments, though.
In 2016, Nordea made major changes within the sustainability area, indicating management and the board's wish to invest in sustainability. A new unit within Wealth Management was created, Sustainable Finance, headed by you, and a new Chief of Group Sustainability, Erik Feldt, was appointed in 2017. What will these changes accomplish?
At Nordea, everything has to do with sustainability started within Asset Management, in the unit within Wealth Management that I mentioned earlier. I have worked with ESG issues at Nordea since I started here in 2009. In recent years, management has seen the need to integrate sustainability into all business areas and solutions. In 2016, the sustainability area was split into two: Sustainable Finance (headed by me) and Group Sustainability (headed by Erik Feldt). The latter group works with CR within Nordea, and addresses issues related to the bank, such as how we treat our employees and our suppliers, and what our energy consumption level is, etc. This group establishes policies on how we should act (code of conduct).
Sustainable Finance, the unit I am responsible for, determines issues that are related to customers and the business side. As I was explaining earlier, it is all about sustainability being integrated into the products and offerings in the fields of investments, lending and advice. This applies to all our business areas: Markets, Corporate & Investment Banking (C&IB), Commercial & Business Banking (C&BB), etc.
What do you think are the driving forces behind the initiative?
Primarily demand from customers. They have, for example, become more conscious about the fact that they can make a difference by actively choosing how to invest their money. Many of us have made conscious choices about the way we live our lives in order to make the world a better place. Somebody may choose to become a vegetarian, another to recycle cans and a third to use public transportation instead of buying a car. These are all examples of good, symbolic actions. But if these people go to their banks and invest all their savings in non-ethical/ESG alternatives, and if they then compare that amount of money with the amount of money they actually manage to save for society from being 'good citizens'…well, then the outcome is quite poor. People have finally started to realise this, and that is a big change.
Also, it is not impossible to imagine that there could be legislation in this area, meaning banks must show that they take responsibility for sustainability. This would apply to all their products.
Despite the recent changes within sustainability at Nordea, do you think that we can work even more on sustainability in the bank? Do you see anything that we can improve on or do differently?
One of the biggest challenges, which has become even more obvious now that we are establishing sustainability throughout the whole organisation, is that every unit except for Asset Management has some work to do within this field. They are lagging by almost five years. Hence we have to raise the pace and create new structures so that we can quickly get everybody on board. So far, some competitors have been better at embracing and implementing new products. One example is green bonds. I presented a proposal on how we could work with green bonds at Nordea in 2011. At that point, other banks hardly knew what green bonds were. Today, everybody associates green bonds in the Swedish market with SEB. We should focus on providing green alternatives throughout our total range of products. We can gain a lot if we take market shares in new, sustainable products: those that can create their own market have a great advantage!
Another thing that we can improve is communication. We do many great things at Nordea, but the outside world may never have heard of them. Since I started at the bank in 2009, I have frequently been in the media and I have participated in many different forums, but I still meet people at Nordea who have no idea who I am.
Has the general perception of sustainable investments changed over time? Is there any area within sustainable investment that has become more or less important over the last ten to 20 years?
A major change in this area is the attitude among fund managers and investors towards ESG; they have become much more positive. In the past three years, they have begun to realise that ESG investments actually provide better returns, by reducing risk. Take BP and Volkswagen as examples. With help from our ESG analysis, we can often see if there is an obvious risk of an ESG-related incident in these companies, although if there is, we cannot be certain when it will happen. That kind of analysis can help us save a lot of money. We (Nordea Asset Management) actually sold our equity stake in BP before its big accident in 2010. The reason for our decision was that we had estimated that the probability of this kind of event happening had increased significantly during the preceding few years. In our analysis, we looked in particular at the development of the company's health and safety budget in relation to its expansion of exploration. To us, it was a clear warning signal when we saw that its safety budget began to fall despite the expansion.
We also work differently with sustainable finance today compared with previously. It could described as being based on three pillars. The first is an old-school approach, 'negative screening', which I described earlier. The second pillar is the ESG analysis, in which we look at our ESG parameters in order to choose which companies to invest in. The final pillar is trying to cooperate with companies that do not meet our ESG requirements. If we see a potential investment opportunity in a company, we gladly help it to fulfil our criteria so that we can be a part of its business. Thus, we reduce the risk in our investment and, at the same time, we make it cheaper for the company to access funding as its risk decreases. Hence, it is really a win-win situation. Our task is not to deselect companies; our task is to invest in companies. But it is also important to show integrity and to act when we think that a company has done something wrong. We did so when we sold our stakes in Telia Company and Stora Enso. We even got rid of our position in Nordea when the investigation into facilitation of tax evasion via Panama came to light. That was perhaps the only positive thing that was published in the media about Nordea and the Panama affair. We stated that we disapproved of the situation that made an inquiry necessary, but it also showed that we are a big bank, and that while we might not all be the 'good guys', not all of us are necessarily the 'bad guys' either. And we stood by the interests of our investor customers.
I would also say that there has been a change in attitudes towards sustainability among listed companies. Companies have become much more transparent and better at reporting what they do within the ESG field, which facilitates our analysis a lot. Previously, it was much harder for us to make these analyses, and especially to compare the companies with each other. So we are seeing many positive changes within the area, which is, of course, very welcome.
Do you believe that Nordea has a particular responsibility to drive this, given that we are the largest bank in the Nordics – should we act as a role model?
Yes, we definitely have a responsibility to act as a role model. We are a global systemically important bank and we are a major player in the European banking industry. Additionally, mistakes within this field cost an enormous amount of money and, more importantly, lead to a loss of customer confidence. For instance, since our poor handling of compliance with money-laundering regulations was discovered, the number of man hours spent by the bank in this area has increased dramatically. That costs a large amount of money. But to lose customers' confidence is even more serious, as it takes so long to regain their trust and cannot be fixed during a round of golf or a customer event. Hence, it is important to show that we are a good role model, not only by – for instance – donating money to UNICEF, but also by offering sustainable products and helping companies to work with sustainability.
Is it possible for Nordea to make a real difference? Can you give an example?
Oh, there are plenty of examples! We can really make big changes that affect a great number of people. One example that I remember and that I'm quite proud of is that we have probably improved water conditions for hundreds of millions of people in India. We were involved in water management in pharmaceutical production in two Indian states. I was part of this project, about two years ago, and it made an impression on me. I even had to spend 48 hours in an Indian jail during the project!
What are you most proud of having accomplished since you joined Nordea?
What makes me most proud is that we are having this conversation today. Right now. Here. Three years ago, I cannot see how we would have ended up at this table together. As I mentioned earlier, we have worked with this for several years within Asset Management, and we have received a large number of prizes and awards, confirming that we have done a good job. But the fact that a new unit has been created within investments, lending and advice, integrating sustainable finance within the whole group, is a huge step and a great opportunity. I am very happy and excited about our new mission.
Read more in Nordea on Your Mind (pdf, 4 MB)
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