A couple of days ago I finally managed to finish up one of the last hurdles of settling somewhere new – getting a new Swedish bank account – and was so happy that I was able to circumvent the system (normally you need a Swedish residence number which we don’t have) that, frankly, I gave very little thought to the ethical standards of the bank that I finally picked. Imagine my surprise when at a lunch seminar yesterday a representative of that same bank – Nordea – started to talk about the ethics of investing in food commodities and the ethics of investment decisions in general!
Sasja Beslik, Head of Responsible Investments and Governance, started out the talk by outlining the decision his bank made to disinvest in so-called “soft commodities” (food commodities such as rice, wheat, barley, cocoa, coffee, and others like cotton) because of the potential impact of speculation activities on real food prices. There has been a lot of research on whether speculation really influences food prices (in absolute value and in volatility), and many arguments pro and con without any scientific consensus so far. Much of this disagreement is linked to different definitions of “speculation” activities, different statistical methodology to analyze correlation versus causation, and vested interests referring to the reports that support their initial opinion. But that is a whole different blog post in itself. Suffice it to say that Nordea took the step to stop trading in products linked to soft commodities, in stark contrast to many other banks that continued such activities citing no hard evidence that would support a disinvestment decision. (Sidenote: The US Commodity Futures Trading Commission, responsible for the largest commodity market, might make a decision on setting trading limits soon. I’ll keep you posted!)
According to Beslik, however, it has been difficult to make the bank’s ethical decision into a profitable one. He explained that as Nordea closed down their commodity portfolios, other banks just opened even more profitable ones: “And did customers just start lining up at the door when we made that decision? Of course not.” His talk had some underlying tones of frustration with the general public that puts the spotlights on banks to make good choices but then expects high-yielding financial products on offer nevertheless.
Nordea established Beslik’s position after they signed the United Nations Principles for Responsible Investments in 2007. Since then, his department has tried to investigate potential investment opportunities on the ground, set up standards that need to be fulfilled in order to have investments go through, train Nordea employees to be more knowledgeable and helpful when asked about ethical investment choices, and inform Nordea customers about the work of the largest asset manager in the Nordic region.
They also recently set up a website with a lot of helpful information, from videos of site visits of projects to a list of excluded companies (right now mainly companies linked to human rights violations, the development of cluster munitions and anti-personnel mines, and nuclear weapons).
When showing the above video on a visit of the Canadian oil sands and consultation with government, community and environmental activist representatives, Beslik explained that his department tries to use the clout of the bank (EUR 200 billion under management on behalf of more than 10 million investors) to set certain minimum requirements that governments and companies should adhere to (e.g. environmental impact assessments, reporting tools, no crass misdemeanor, etc.) To the question of an audience member whether Nordea still ended up investing in the tar sand industry (he had been highlighting the huge environmental burden of such projects), he said “yes” though, because almost all oil companies have some stake in the tar sands and his visit did not allow him to identify companies in particular that were behaving much worse than the rest and should be excluded.
This opened up a huge Pandora’s box of questions for my friend and me, though…
Are such efforts, as nice and attention-grabbing as these documented onsite-visits are, purely an advertising tactic then if real investment decisions are seemingly only marginally affected?
Would Nordea be large enough to have an impact by not investing? Maybe their clout is better used “in the system” to encourage gradual changes?
Is Beslik right that the bank can ultimately only go as far as the customers support it to go, and currently there is just not strong enough of a push to make ethical investments more popular? Is this the fault of consumers for not demanding more ethical investment products, or of the banks of neglecting, mismanaging and not advertising the existing ones, making them an non-competitive choice?
Since the stock market is essentially a instrument of future expectations and predictions, why don’t we have more trust in ethical (aka green, sustainable, fair) companies than in those only concerned in short-term gains?
Are humans just too greedy to look beyond the attractive prospect of a short-lived speculation bubble?
I can’t just leave you with those (somewhat depressing questions) though, so here is a fun fact – ethical investment products (and their definition varies from fund to fund, often they are less related to sustainability criteria than to moral questions, eschewing companies involved in the weapons industry pornography, alcohol, tobacco or gambling) can be just as profitable as others, according to this website:
Do you invest in any ethical funds or have inquired how your bank treats these issues?