Practical analysis for investment professionals
25 February 2021

ESG Matters: Global Trends and Transitions

How are women growing in importance in the investment ecosystem?

How are firms approaching the sustainability journey?

What is the Nordic perspective on the environmental, social, and governance (ESG) space?

For insight on these questions, Aline Reichenberg Gustafsson, CFA, and Barbara Stewart, CFA, shared their perspectives in a wide-ranging conversation.

Reichenberg Gustafsson is the editor in chief of, a Nordic sustainable investment platform that serves as the information link and connection hub between institutional investors and managers offering sustainable investment products. Stewart is a researcher and author who has been producing the Rich Thinking® series since 2011.

What follows is a lightly edited reproduction of their discussion.

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How are women growing in importance in the investment ecosystem?

Barbara Stewart, CFA: Why should pension funds and institutional investors care about sustainability issues? Because women are an increasingly large demographic in terms of wealth: They are much more than half of all pensioners, due to the fact that they are living longer, and ESG topics are much more important to them, on average, than for men. In today’s world, this is about making money.

When I began doing Rich Thinking® research in 2010, ESG wasn’t yet a big thing. It was in 2013 that I caught my first glimpse of what I felt could potentially become an important trend for women. In 2013, I interviewed 100 smart women around the world and asked them how they were investing their money. At least half told me they were spending some portion of their potential retirement funds on what mattered to them now rather than investing in traditional longer-term asset classes. In fact, 25% said they were investing a sizeable portion of their wealth in a business that was directly related to their personal cause.

I learned that a woman’s definition of investing is much broader than stocks or bonds. Women invest a sizable amount of their assets outside of their traditional equity portfolios because they prefer to invest in causes and concerns that matter to them, and they don’t think they can do so through the usual stocks and bonds. The “female asset mix” looks quite different from the traditional asset mix and includes such asset classes as aspirational investments, legacy investments, and “save the world” investments.

In 2017, I did some commissioned research for a global bank. The project was to interview 60 ultra-high-net-worth clients across four Nordic cities and write a report, “Understanding the Female Customer.”

Guess what I found out is meaningful to female customers in the Nordics? Environmental, social, and governance (ESG) investing. Nearly all of the women interviewed expressed a distinct preference for “save the world” type investments: ideas that will benefit society as a whole by promoting health, children’s welfare, gender equality, or other forms of social justice.

Women want to act and do something about today’s issues and investing is a powerful way to accomplish this. Perhaps the most surprising finding was that over half of the women surveyed in Norway want to invest specifically in the gender-equality aspect of ESG. They are actively searching for opportunities to support companies with equal gender representation on boards and in leadership positions. Nordic women see investing in the female economy or the “She-economy” as not only the right thing to do from a social perspective but also as a way to make money.

It isn’t just Nordic women leaders who feel this way. In 2018, I interviewed the CEO of a large corporate pension fund in Montreal who said:

“I will mention that about 75% of ESG managers are women. This is disproportionate to the rest of the industry. So if we were to make ESG the focus of the investment industry we would actually solve the gender issue.”

If the investment industry can figure out gender equality and at the same time offer investment opportunities in the ESG causes and concerns that matter to women, this will result in making more money.

Aline, what trends are you seeing in the industry regarding women leaders in the ESG space?

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Aline Reichenberg Gustafsson, CFA: When I launched NordSIP and started talking to many ESG specialists in the Nordics and other Northern European countries, I was amazed by how many more women there were compared to the rest of the financial industry. In 2019, I performed an informal survey to try and find out why that was.

First, perhaps a little cynically, sustainability wasn’t always considered — and still isn’t in most places — as important a field as hard-cash, profit-generating activities. To address ESG questions, firms turned to their female-dominated communications departments. Hence women took roles in ESG because they were available and open.

Second, the world of finance is usually highly competitive and testosterone-heavy. Many women get turned off by that, but sustainability is something women can identify with and become passionate about. Because they care about more than just money, these women have sought and held onto positions where they could drive an agenda that feels right.

In male-dominated discussions, women are regularly ignored when voicing concerns or highlighting risks. In their ESG role, however, women were given the legitimacy to disagree with the mainstream financial paradigms and that is why they enjoy it and excel at it. Interestingly, men have increasingly become part of the conversation and I believe that’s good news: It means ESG has come of age and is too serious to ignore. Women, however, can still hold firmly to their seats at the table and there’s space for more.

When a lagging firm wants to show their commitment to sustainable investment, they will poach an “ESG star” from a leading firm. More often than not, they hire women who have been successful not only driving their sustainability agenda internally, but have also brilliantly built up their own image in the finance community. Consequently, these stars serve as role models and inspire more women to join the field and not fear entering a male-dominated investment community.

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How are firms approaching the sustainability journey?

Stewart: How does a money manager pivot to an ESG-aware strategy? I’m on the advisory board of Kensington Capital Partners in Toronto and we are in a process of trying to figure out just how ESG compliant or sustainable our existing and new investments are.

Why are we focused on this? Martin Kent, a managing director, explains:

“Kensington’s journey into ESG is primarily being driven so we can become more proactive in incorporating ESG into our decision making processes. In discussions with our employees, our portfolio investments, and our investors, we recognize the increasing importance ESG issues play whether when raising funds, making investments, or building value. In many respects, we already take these issues into consideration without specifically identifying them as part of our ESG policy. I think it’s about trying to formally integrate the awareness of ESG risks and opportunities into how we conduct our business.”

But where to start? To educate myself, I reached out to five different ESG experts globally: two from North America and three from Europe. Most said, “This is exactly what we do, and we charge $250K to design a custom survey.”

But one, you Aline, sent me an off-the-shelf Invest Europe survey for private equity. This is an excellent resource but we felt it was too extensive for our first-year dipping our toes into the ESG waters with our investee companies: about 11-pages long and around 150 questions. We decided to engage an ESG consultant to customize a straightforward, easy-to-complete questionnaire that would be less likely to irritate our companies.

From there, we grouped our investee companies into three categories: Venture, Growth, and Buyout, which is how we typically think of our portfolio. We looked at our companies to try and understand how their processes and practices stack up against various benchmarks and best practices. That led to the question of what an appropriate benchmark is and how can one benchmark be applicable to a broad range of companies and industries. Once we decide on relevant benchmarks, we can begin to talk about how companies can improve on these metrics. The axiom “what gets measured, gets done” applies here.

After refining our questionnaire, we then needed to decide on a communication strategy that made sense for each individual company. Kent elaborates:

“Getting buy-in from investee company management is an issue as the inevitable question will be: What’s in it for me / the company? The ultimate goal would be to have management teams that internalize ESG best practices because they understand it drives superior returns. Many companies engage in progressive ESG practices without formally calling it that, because it’s just good management (‘the right thing to do’).  Also, many of the businesses we look at and invest in are smaller, early stage, or growth companies that are facing more pressing issues — survival, liquidity, getting products to market, growth, ownership transition, etc. For them, formally adopting an industry standard such as UN PRI (United Nations Principles for Responsible Investment) may not be practical at this point in their development, and may be seen as a ‘nice to have,’ not necessarily a ‘need to have.’”

Aline, it would be great if you could provide some context here. How does Kensington’s journey / process compare to other firms today?

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Reichenberg Gustafsson: Most ESG analysis is common sense, especially when it comes to risk mitigation. In any traditional investment analysis, a simple SWOT or stakeholder map will identify where the company may be exposed to environmental threats or social issues with their workers, even if only from a reputational perspective. Governance analysis also plays an important role, especially in publicly listed companies where shareholders have less of a say individually than general partners do in the realm of private equity.

So, what is the fuss with ESG suddenly? There are several reasons why large institutional investors are now paying closer attention to these factors. Climate change, for one, has started posing more of a threat. Large insurance companies, which also own significant pools of assets to invest, are experiencing the negative effects of climate change already. But given both the evolving nature of the problems and the global scale of the value chain in many sectors, it is extremely difficult to predict what will hurt which company, when, and by how much. It has become a matter for experts and deserves more than a simple mention on an investment memo.

As investors focus on negative externalities, they discover other risks they weren’t paying that much attention to previously. At the same time, the younger generations seem to care increasingly about more than just money. As the millennials have entered the work force and started saving, the notion of investing sustainably has become more popular and is now slowly entering the agenda of pension funds and other saving schemes.

Investment firms must answer questions about their ESG policies or the state of their ESG integration. A few large asset management firms have picked up the gauntlet and invested heavily in building state-of-the-art databases to show how the “E,” the “S,” and the “G,” on their own or in combination, affect the portfolios.

How does an investment firm implement ESG in practice? The idea is not to force a one-size-fits-all model onto any investment style, but to enable an investment firm to make better-informed decisions, while providing genuine answers to their investors about how their assets affect the world they live in. To start with, a certain level of ESG analysis should be conducted for each position, whenever the investment style allows it. Ideally, the investment professionals conducting the financial analysis should be trained well enough to perform that analysis in order for ESG to be fully integrated in the investment process. When specialized expertise is required, ESG teams can provide the necessary analysis. Beyond the notion of risk mitigation, investment firms should also be able to determine and communicate clearly what values they rely on for their investment selection.

To be credible then, every ESG journey should include an honest self-assessment of investment values. This is not to say that the bottom line should be forgotten altogether. To the contrary, well-defined and targeted values can lead to tremendous investment opportunities. Hydrogen, water-purification, protein substitution, or better health care are all current investment themes that are linked to positive ESG outcomes and present potentially strong innovation and growth opportunities.

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What is the Nordic perspective on the ESG space?

Stewart: Based on my global research, the Nordic countries have been the frontrunners when it comes to embracing ESG investing. In 2018, I did a commissioned research project for another global US-based bank and interviewed 60 CEOs around the world, both male and female, on the purpose of the investment industry. In many parts of the world, I encountered some rather extreme views on ESG and a lot of cynicism! A few excerpts from my interviews:

“We are cynical about ESG here in Israel. One person’s good cause is another person’s bad cause. We think saving the world should be kept separate from investing.” — Executive Vice President, major bank, Tel Aviv

“In Argentina, 100% of people in the industry would say that the purpose is to make money. I need to check our website to see what it says about our bank’s purpose 😊.” — Senior Vice President, major digital bank, Buenos Aires

“Of course it is nice to ‘Do Good’ and it is an important branding exercise. But ultimately the shareholders will decide for you. You still need to make money.” — Executive Vice President, major bank, Paris

But it was a different story in the Nordics:

“The ESG focus in the Nordics is huge and especially with the younger generations. 80% of the buy-side in Scandinavia say that ESG influences their decision-making processes.” — Senior Executive, NASDAQ stock exchange, Copenhagen

A former chairperson of a Big Five accounting firm in Stockholm gave me his perspective on the ESG space, past and present:

“In the late 1990s, I and another partner were very involved in promoting the idea within the firm that sustainability should include not only good environmental work but also social and financial innovation. People laughed at us! They thought we were a couple of lunatics! But here we are now and there has finally been acceptance of this idea at least here in Sweden. But we should not continue to see ‘sustainability departments’ — always run by one woman. Sustainability needs to be in the DNA of every company and the entire industry.”

Aline, what is going on in the ESG space in the Nordics today?

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Reichenberg Gustafsson: Culturally, the Nordics might have had a head start when it comes to sustainability and investing. Sweden is a social democracy and has high taxes, but the individual can rely on the state for a large part of expenses throughout their lives. Everything from day-care for kids, starting at age one, to elder care, including schooling and health care at all ages, is so heavily subsidized, it is almost free. This means that society buys into the idea that individual choices and profits can be limited and sacrificed to the greater good. The boards that define pension funds’ investment guidelines often include members of unions and other stakeholders in the community who bring environmental and societal concerns into the discussion. The notion of fiduciary duty now firmly embeds the notion of long-term sustainable development, along with the maximization of risk-adjusted profits.

This is an amazing space to be running a news and analysis platform such as NordSIP. With an ever-increasing flow of new ESG investment strategies on offer, we are busy trying to shed light on what constitutes a genuine product compared to what is now commonly referred to as “greenwashing” or “ESG washing.”

A recent example has proved motivating for our team, as we had the opportunity to participate in spreading the word about an outrageous greenwashing scheme. Nordic pensions are quite fond of green bonds, which offer a comparable risk-adjusted return to regular bonds issued by the same entity but guarantee that the proceeds will be dedicated to environmentally friendly purposes.

A couple of years ago, a large French asset manager raised €2 billion for a green bond fund focused on emerging markets, with strong backing from Nordic institutions. Thanks to a local think tank funded by a US foundation, we found out that one of the French-managed green bond positions had been issued by the State Bank of India, which decided to fund the development of a new Australian coal mine by an Indian conglomerate. This new coal mine is, of course, highly controversial as it will ultimately release enormous amounts of CO2 into the atmosphere.

When the think-tank highlighted this investment chain to large Swedish investors, they turned to the French manager, who divested from the State Bank of India’s green bond. Ultimately, several other asset managers followed suit.

As large investors increasingly take responsibility for the outcomes of their investments, financing for “dirty projects” such as the Australian coal mine may become prohibitively expensive. As a news platform, we highlight these inadequacies between stated intensions and actions and thereby participate in this important trend.

Stewart: As always, stakeholders and investors have the power. The ESG trend is your friend. Follow the money! Thanks so much for the discussion, Aline.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©Getty Images / baona

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About the Author(s)
Aline Reichenberg Gustafsson, CFA

Aline Reichenberg Gustafsson, CFA, is the editor of NordSIP, an online information platform she founded in 2017 to fulfill the fast increasing needs of Nordic professional investors for pertinent news and analysis on sustainable investments. Prior to entering financial journalism and publishing, she spent 17 years working in asset management in Stockholm, London, and Geneva, including as a long/short equity hedge fund portfolio manager, and buy-side analyst, but also as CFO and COO in asset management firms. She holds an MBA from Harvard Business School, a License in Economic Sciences from the University of Geneva and is a CFA charterholder.

Barbara Stewart, CFA

Barbara Stewart is a chartered financial analyst (CFA) with 30 years of investment industry experience; five years as a foreign currency trader, more than two decades as a portfolio manager for high net worth entrepreneurs, and during the past six years, as an interview-driven researcher for multiple global financial institutions. She is a keynote speaker for CFA societies, banks, stock exchanges, and industry conferences globally, and she is a columnist for CFA Institute, Canadian Family Offices, and Canadian Money Saver. She is on the Advisory Board for Kensington Capital Partners and also is the Ambassador for the Kensington Women’s Forum. Fourteen years ago, Stewart saw a need to challenge outdated financial industry stereotypes and share positive messages about women and money. Today, she is recognized worldwide as one of the leading researchers in women and finance. Rich Thinking® global research papers quote smart women and men of all ages, professions, and countries, and are released annually on International Women’s Day, 8 March. To find out more about her research, visit Barbara Stewart.

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