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Just a few years ago, Finnish investors were looking for sustainability primarily from companies with low emissions. But a change in this investor behaviour is evident and the change has even intensified, especially over the past year. At the same time, the anti-ESG movement in the US is slowly spreading to Finland.

Over the past couple of years, some new opinions have emerged when Finns are discussing ESG matters. Just a couple of years ago, we were still talking about climate change, and our hopes were mainly focused on reducing emissions as soon as possible. At that time, the investment targets were favouring companies that already had low emissions. Now the debate has shifted in the direction that if we want to bring about change, we also need to invest in high-emission companies that are making a difference.

Since last year, inflation has been strong and interest rates have risen, leading to a momentary shift in the short-term priorities of many investors. Since the war started, many ESG products, especially those with exclusions, have also been less attractive from a return perspective than, for example, the energy sector. As a result, investors have had to ask themselves whether they are prepared to accept a possible underperformance just to stick to their ESG principles.

A growing discussion on biodiversity has also been evident, which I see as a positive development. Considering the composition of industries in Finland, an increase in awareness and new perspectives are beneficial, since many companies operate in highly emitting industries, but are at the forefront of change and are already very responsible from a global perspective.

While ESG discussions in the US turn negative, regulations tighten in the EU

In the US, political stand-offs and polarisation have already led to very strong scepticism against ESG in some places. For example, 23% of Republican supporters see climate change as a major threat, compared to 78% of Democrats. This thinking is also trickling down to Europe and Finland, and we have already heard voices critical of climate change.

In Finland, common sense has so far prevailed, although extremes have been present in the social discourse for some time here, as well. I see Finland's strength in the fact that we are nevertheless trying to find a common understanding and a middle ground. When extremes become stronger, the middle path disappears from view, even if it is the most viable solution. Polarisation makes it more difficult to make progress on responsible investment, since legislation and regulation need a middle ground to work.

In Finland, responsible investment is strongly influenced by the EU’s regulations on ESG. In general, the attitude has remained positive in Finland, even though the regulations present some challenges for Finland. We have a lot of highly emitting basic industries, which are very important for the economy. High-emission sectors, such as mining and basic material industries, suffer the most from regulation, as changes in these sectors are slow processes. On the other hand, Finnish companies have long worked hard to take ESG issues into account, because the values it represents are perceived as important here.

The challenge of EU level regulations is that there are different types of countries within Europe and it is difficult to make regulations that treat everyone equally. In addition, small countries have little say in the creation of regulations and legislation, which some countries perceive as unfair.

Responsible investing is not black and white

There can be many opinions on regulation, but it helps to harmonise data and reporting, which facilitates comparability. Regulations allow for a data-driven evaluation of actions taken, reducing the potential for greenwashing. In addition, measurability creates the ability to see where we are heading. Another good side of regulation is that it puts pressure on governments and companies to change things faster than they might otherwise.

ESG or ESG investing is not black and white and the difference between right and wrong is not so clear-cut. There is nothing wrong with being critical and sceptical. It is good to question such issues. But many issues have a sense of urgency, such as the fight against climate change, and things will not get easier if we only focus on the extremes - perhaps the true position is somewhere in the middle.

In addition, our understanding of these issues is constantly growing, but also our previous thoughts on ESG matters are being challenged by changes in global politics: The debate on the responsibility of investing in the defence industry, triggered by the war, is a good example of how one's own views and opinions can be re-examined and changed as situations change or new information becomes available.

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