Issue 6, 2021

The text explores several key themes central to Nordic institutional investment, with a particular focus on sustainability, alternative risk premia strategies, and climate change risk management. A significant portion is devoted to analyzing the EU’s green taxonomy, highlighting divergent views on its effectiveness. Some experts, like Risto Murto of Varma, express skepticism due to political influences and narrow definitions that may limit practical application, particularly noting tensions in energy classifications such as nuclear power and natural gas. Conversely, Kristin Magnusson Bernard, CEO of AP1, views the taxonomy as a valuable transparency and communication tool, providing a sustainability benchmark despite its imperfections. The discussion also touches on emerging market debt, emphasizing a more selective, research-intensive approach, integrating ESG considerations, and recognizing challenges around data quality and alpha generation within ESG frameworks.

The text further examines alternative risk premia strategies, noting a shift among Nordic investors following the poor performance of many such strategies in 2020. Insights from pension funds like Velliv and AP2 reveal lessons learned around data mining risks, trading costs, and market regime changes, with calls for more robust, diversified, and ESG-integrated implementations. Institutional investors emphasize the need to continuously refine and critically evaluate these strategies, balancing complexity and transparency. On climate change, Nordic investors discuss the pressing need to address both physical and transitional risks with nuanced ESG approaches, while managing challenges in data comparability, regulation, and balancing exclusionary practices with active engagement. Finally, profiles of senior investment professionals illustrate evolving leadership dynamics, innovations in responsible investment practices, and personal reflections sparked by the pandemic and changing economic landscapes.

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Table of content

Introduction and Industry Context

Overview of recent challenges for alternative risk premia strategies, the impact of Covid-19 on investor meetings and events, and renewed discussions on climate-related investing in Nordic big pension funds.

Editor’s Commentary on Responsible Investment Trends

Key priorities for responsible investors, including human rights, tax avoidance, net-zero commitments, and corporate lobbying, alongside global policymaker engagement.

EU Taxonomy: Evaluation and Challenges

Debate on the EU’s green taxonomy focusing on its political influences, inclusion of nuclear power and natural gas, usability for institutional investors, transparency benefits, and outlook on the forthcoming social taxonomy.

Emerging Market Debt: Selective Opportunities and ESG Integration

Perspectives on finding value in emerging market debt including frontier markets, absolute return approaches, challenges of ESG integration, and increased selectivity among Nordic pension funds.

ETF Growth and Sustainable Product Development in the Nordics

Insights on ETF market expansion in Nordic countries, BlackRock’s product innovation with thematic and sustainable ETFs, SFDR’s impact on fund classifications, and ongoing client education efforts.

Interview with AP1 CEO Kristin Magnusson Bernard

Leadership insights focused on organisational changes, working remotely during the pandemic, investment strategy refinement including risk management and hedge fund exposure reduction, and fostering a culture of intellectual challenge.

Alternative Risk Premia: Lessons Learned from Recent Years

Analysis of the disappointing returns in 2020 and prior, challenges like data mining and trading costs, the importance of economic rationale, market environment effects, and the growing role of ESG in strategy design and implementation.

Finnish Investors Roundtable on Climate Change Risks and Opportunities

Discussion covering strategic portfolio management of climate risks, ESG integration focus shift towards environmental factors, challenges of biodiversity and physical risks, regulatory roles, and the balancing act between exclusion and active stewardship.

Interview with AP2 CIO Hans Fahlin

Reflections on sustainable investing evolution at AP2, pandemic-induced personal reassessment, ESG integration especially on human rights and biodiversity, managing China exposure, and portfolio diversification strategies over the past decade.

Profile: Karoliina Lindroos, Head of Responsible Investment at Ilmarinen

Personal journey into finance, Ilmarinen’s comprehensive ESG approach, ongoing projects such as climate roadmaps, evolving ESG data capabilities, and perspectives on challenges and strengths in sustainable investing.