Sustainability and Corporate Governance Report 202
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HANDELSBANKEN FONDER – COMMENTS FROM THE CEO In w
hat ways are companies with sustainable business models more profitable? Magdalena Wahlqvist Alveskog: Sustainability risks will always be present, and they differ depending on company and sector. In a changing world, with global value chains, companies have got to manage new risks and seize new opportunities when they arise – otherwise they will quickly be overtaken by other players. New regulations and requirements are always emerging in this area, too, in part as a result of the EU’s efforts in sustainable finance. Companies that already integrate sustainability in their operations and business model will be able to adapt faster. This way, they can future-proof their competitiveness. In which situations do you exclude investments – and when do you decide to pursue engagement? Karin Askelöf: We exclude investments in companies with unsustainable long-term business models that risk undermining the goals of the 2030 Agenda and the SDGs. This could involve power generation from fossils fuels, or tobacco for example. We instead want to use our resources and expertise to seek out companies that offer solutions to global sustainability challenges, such as water purification and energy conservation, where we’re convinced that the future winners exist. We believe that one of our main tasks as an investor is to redirect capital away from industries that are unsustainable in the long run to profitable sectors. Another way to accelerate development is to invest in companies in transition, which means companies that are working to reshape their operations in a more sustainable direction. Is it even possible for you to exert influence in your index funds? Magdalena Wahlqvist Alveskog: Absolutely. We are active owners in both actively managed funds and in index funds. Besides offering index funds that are fundamentally sustainability-aligned, we can influence in several different ways. As a major owner, we get the opportunity to serve on nomination committees and highlight sustainability issues. We also exert influence by voting at annual general meetings, engaging in dialogue with the companies and taking part in investor initiatives. Karin Askelöf: We’re often asked whether a manager of passive funds really has the chance to influence the companies’ sustainability efforts – and the answer is a resounding yes. Our engagement activities also take place on an ongoing basis in our index funds. We see that we have an important job to do here, because in index fund management we have holdings in thousands of companies around the world. What are the main challenges you see within sustainability? Karin Askelöf: The main challenge is that sustainability risks will always exist. As a global investor, we constantly need to take geographical context into account to understand how each company can best increase its contribution to the SDGs and climate measures based on the way they work. For example, many of the 2030 Agenda goals are targeted to fundamental needs and rights that are often underserved in developing countries – such as the need for basic health care and securing each individual’s right to education. Magdalena Wahlqvist Alveskog: Sustainability involves an incredible number of issues and is an area that is highly complex. Although it’s possible to use sustainability ratings and criteria for the companies’ efforts, evaluating different sustainability issues and comparing them with each other remains a struggle. We are humble in the face of the huge task of covering all areas, and even considering that some steps forward in the 2030 Agenda risk counteracting other goals. This means that regardless of whether a product or service is based on a sustainable business model, there might be a negative impact that we need to analyse, even when we invest in solution-oriented companies or companies in transition. Karin Askelöf: Going forward, unforeseen events linked to climate change will continue to challenge us as investors. This means that we must try to understand and evaluate other characteristics of the companies, and by doing this identify future winners that can deliver solutions to the challenges and needs related to the climate crisis. In March 2021, new rules on sustainability-related disclosures for funds were published. What does the new EU regulation mean? Karin Askelöf: With this EU regulation, funds with sustainable investment as the objective should be labelled as ‘dark green’ and funds promoting environmental or social aspects should be labelled as ‘light green’. The regulation primarily covers disclosures on the funds’ sustainability. In the long run this will lead to harmonisation in the area, making it easier for the customer to understand how we approach sustainability in our funds. The regulation is just the beginning of a host of new guidelines and regulations we see emerging in this area, which means that both we and the companies we invest in need to improve reporting on how sustainability risks are managed in the business. Many people are curious about the widely discussed EU taxonomy. How do you view it, and its significance for future developments? Karin Askelöf: In many ways, the taxonomy is about making it easier to identify and compare environmentally sustainable 4