Pension funds using Lithuanian money are not lagging behind the world: more and more companies may be blacklisted

“This is a new reality in which, sooner or later, we must start operating,” says Tadas Gudaitis, director of Swedbank Investment Management, of the increasingly common three-letter ESG.

ESG (environmental, social and corporate governance) describes the principles of environmental, social responsibility and corporate governance, according to which a company can be considered sustainable and in harmonious development.

The trend will only get stronger

“Sustainable investment decisions are becoming the norm, we see it and we have to acknowledge it. Therefore, we manage our funds accordingly with above-average sustainability requirements. Sustainability aims to have the highest or above standards. average for sustainable companies in our portfolio, “said a representative of the pension fund manager.

The company estimates that one in every three euros in the fund is already invested in investments that meet ESG requirements.

Paulius Kabelis, Head of the Investment Management Group at SEB Investicijų Valdymas, also admits that the attractiveness of returns is no longer the most important criterion when choosing where to invest.

“The investment sustainability criterion is included in our investment decision-making process. In addition to the SEB Group ‘blacklist’ for investing in stocks or bonds of individual companies, we also apply strict sustainability requirements to the managers of the actively managed funds in which we invest. He said. “We demand that management companies sign the United Nations Declaration on Sustainable Investment (UN PRI).”

Mr. Kabelis estimates that the company he currently represents has invested around 40 percent directly and through mutual funds that adhere to clear principles of responsible investment. pension fund assets.

“It just came to our attention then. Assets are being invested unsustainably, but there is still no consensus on how to treat such investments as government bonds of the Republic of Lithuania,” he explained, adding that the weight of sustainable investments in the Pension funds has been increasing steadily in recent years and will continue to grow.

Doesn’t the return suffer?

It is still common in society to think that what is sustainable, protects the environment, is honest and responsible on the part of the business, many times costs more. Consequently, it should be considered that a responsible, cohesive and sustainable company could generate less profit, which would generate a lower return for investors. Still, all portal Delphi Representatives of pension funds interviewed assured that the exact opposite occurs.

“We just realized that it is a myth that sustainable investments pay off. According to the analysis of the pension funds of independent international companies, sustainable investments tend to generate returns even higher than average, ”said T. Gudaitis.

According to him, this can also be seen in the activities of the pension funds managed by the company he represents.

“If we compare the return on our investment in a business with higher or higher sustainability criteria during the first wave of the pandemic, we will see that it has helped pension fund participants save around $ 10 million. Euro” explained the interlocutor.

He is also supported by Andrius Adomkus, director of the pension asset management group and fund manager of Luminor Investicijų Valdymas.

“The absolute majority of investments in Luminor’s actively managed funds with a socially responsible investment strategy last year outperformed both average market benchmarks and passive funds or so-called exchange-traded funds,” he said. “Among the greatest positive impacts on the profitability of our pension funds this year and last year is investment in sustainable and socially responsible companies around the world, which make up a large part of the portfolio.”

Some companies are already in trouble

As society, politicians and investors increasingly push companies to be sustainable and responsible, some sectors are already feeling the effects of attracting investment. No matter how responsibly oil or coal mining companies, tobacco companies, alcohol producers, the gambling business treat employees, many will agree that it is difficult for them to be sustainable and sustainable overall. As a result, more and more sectors are emerging that receive less and less favor from investors. Paulius Kabelis, representative of SEB Investicijų Valdymas, also acknowledges this.

“Yes, the attractiveness of this type of investment and, at the same time, the demand, has already diminished. Many investment funds exclude some sectors from their investment portfolio in general, or significantly limit the weight of these sectors in their strategies and they select only those companies that, although they operate in an unattractive sector, take actions to reduce the negative impact of their activities on the environment and society ”, he commented.

At the time, Vaidotas Rūkas, head of INVL Asset Management’s Investment Management Division, cautions that investors don’t completely overlook “bad” deals. He is convinced that even in sectors that go against the principles of sustainability, there is much that can be done to minimize the impact: less polluting oil refining, less harmful tobacco products.

“Some would say that it would not be better at all, and they are right. But the goal of reducing damage is also a great achievement,” he says.

Speaking about the pension funds it represents, he added that the proportion of investments that meet strict ESG standards in the funds managed by INVL Asset Management is about a third.

T. Gudaitis, head of Swedbank Investment Management, also talks about the fact that certain sectors do not need to be condemned and sent to myriop. According to him, the assessment of companies according to their standards of sustainability, social responsibility, governance and sustainable development also takes into account the extent to which companies are willing to change.

“When evaluating investments, we look at three areas: environmental protection, social responsibility and governance. Each business is original and we look at the combination; perhaps one aspect is more important than the other. It is also important for investors how the business is ready. to change, so it is seen as a process if the business wants and plans to change ”, he emphasized.

Offers to promote sustainability literacy

When asked what makes companies sustainable, T. Gudaitis named the society first.

“If our society and the states paid more attention to consumers so that they understand what sustainability is, what the choice of such goods means, the change would be greater. Here we can talk about sustainability literacy. Since banks constantly educate the public about financial education, we should start talking about sustainability education, ”he said.

However, the power of investors should not be underestimated, he said: “If companies realize that unsustainable companies do not attract investment or make their capital more expensive, they will also be forced to change.”

For his part, Andrius Adomkus, a fund manager at Luminor Investment Management, notes that for some time now, green policies in Europe have helped companies to focus increasingly on high sustainability standards. Ambitious plans are already being heard in China. The results of the US presidential election add to the joy, which gives hope that sustainable development will also not be forgotten in the country and, more recently, in the world’s largest asset management company, Blackrock, which manages 7 trillion. Client Assets in US Dollars, announced that by voting at shareholders’ meetings, it will now actively pressure companies that invest in its managed fund portfolio to pay more attention to the environment.

“The growing importance of ESG in the world’s largest countries is being monitored and financial market regulators and supervisors are being encouraged to pay more attention to this. The guidelines for socially responsible investing may soon become global requirements and this cannot be ignored, ”he said.

V. Rūkas, representative of INVL Asset Management, sees a similar situation.

“Little by little, the principles of ESG are becoming mandatory, and Europe is leading in this area. It makes sense to follow ESG principles – they are important to both the company’s employees and customers, and ultimately the financiers, he said. – In addition, in the face of rapid climate change and changes in people’s lifestyles, ecology and sustainability are becoming an increasingly important issue for investors and consumers, especially for the younger generation (millennials) , who would agree to forego additional returns for a cleaner and more transparent environment. For example, Greta Tunberg’s world-famous ambitions and actions to reduce climate change and other youth initiatives to clean up the world. “