Nordics are pioneering the future of ESG

By Michael J. Scanlon, Managing Director of ESG Practice, Silver Leaf Partners

The Nordic countries are often regarded as leaders when it comes to sustainability. In the 2020 SDG Index, which measures a country’s total progress towards achieving all 17 SDGs, 5 Nordic countries – Sweden, Denmark, Norway, Iceland, and Finland – are top-ranked. They also dominate the ISS ESG Country Rating. Among the best-performing countries, Sweden and Finland particularly score high on education, healthcare, and social security infrastructures. These two countries have great performance in the rating area of “Climate Change and Energy” as well, along with Norway and Iceland.

At the corporate level, issuers in those countries usually have high rankings in terms of sustainability scores. According to the Morningstar Sustainability Atlas, Finland, Sweden, and Denmark rank among the top five at the company level. On the other hand, Nasdaq Helsinki topped the sustainability disclosure performance ranking for the second year in a row, as stated in the report prepared by Corporate Knights. In disclosure timeliness, other Nordic countries’ stock exchanges also performed well: the issuers of Nasdaq Copenhagen were the fastest disclosers (73 days), while the average timeliness for Nasdaq Stockholm is 98 days, against a global average of 164 days.

It is no surprise that Scandinavian countries rank highly throughout major ESG charts, as they uphold a long tradition of jointly promoting sustainable development nationally and internationally – from the creation of the United Nations Environment Programme (UNEP) as a result of the Stockholm conference in 1972, to the publication of the first Sustainable Regional Development in the Nordic Countries report in 2001, and to the introduction of Nordic Strategy for Sustainable Development 2013-2025. As mentioned in the report issued by the Nordic Council of Ministers in 2017, these countries have already established a solid foundation to collectively work towards the achievement of the 2030 Agenda. Such work is supported by a strong commitment from the highest political level, and is carried out at all levels. For instance, as Finland pledges to become carbon neutral by 2035, ambitious climate plans are implemented by major Finnish municipalities to become carbon neutral by 2030. The Finnish government is not alone in its climate-related commitments. Norway also set a 2030 carbon-neutral goal. Sweden plans to achieve net zero emissions by 2045. Iceland now aims to be carbon neutral by 2042, eight years ahead of the Government’s target. Denmark passed a new Climate Act in June 2020, aiming to reduce GHG emissions by 70 percent by 2030.

As for institutional investors in the Nordic region, ESG factors have long been recognized as a key component of investment. A survey among Nordic institutional investors conducted by NN Investment Partners indicates that ESG has become a norm in the Nordic asset management industry, with Sweden and Denmark leading the pack. A Robeco article pointed out that the largest pension funds in Nordic countries concur in the importance of sustainability and there are strong network effects within these countries. In respect of their ESG policies, Swedish and Danish pension funds focus on climate and divest most from carbon-intense firms. Meanwhile, the Government Pension Fund of Norway, the world’s largest sovereign wealth fund, may ban companies based on their human rights record or productions of lethal autonomous weapons, due to proposed changes to the ethical guidelines by the Ethics Commission in June 2020.

Overall, as illustrated by many studies, the Nordic countries are committed jointly to a more sustainable future and have nurtured the market with many years of experience, a high level of accountability and transparency, as well as consistent efforts of innovation. Contributed By: Laurel Jiang, SLP-ESG Analyst, MPA (May 2020 Columbia School of International and Public Affairs)