| 03.11.2022

Social aspects increasingly more important for those wanting to invest responsibly

Skylt med orden environmental, social och governance
Responsible investment has traditionally mainly focused on environmental issues, but the social responsibility dimension is becoming increasingly important. The war in Ukraine and the pandemic may be a contributing factor, says Emilia Vähämaa, Wärtsilä Associate Professor at the Hanken School of Economics.

Porträttbild av Emilia Vähämaa
Emilia Vähämaa

“Environmental issues such as emissions are easy to measure, so perhaps it has been easiest to focus on them. Now, social responsibility factors such as workers' rights and gender equality issues have begun to weigh more heavily.”

Put briefly, responsible investment means taking ESG factors – namely, environmental issues, societal aspects and business governance – into account. A number of critics argue that the return on investment (ROI) will be less when investors focus on anything other than the actual returns, but according to Vähämaa, the research shows otherwise.

“Responsible investment actually yields a better ROI. Companies put their reputations at great risk by not caring about their ESG ratings, or by just paying it lip service. It can cost you a lot if the company you have invested in runs into problems with ESG issues. Those kinds of details spread like wildfire.”

In the future, unsustainable companies will no longer even exist, according to Vähämaa. Their financing will run out, so that is a way in which investors can have a huge impact. 

“I daren't predict a timeframe for when that will happen, but the pace of change is constantly speeding up. It's going surprisingly fast.”

Many companies lack expertise

Since the beginning of this year, ESG issues now affect a much larger proportion of companies than before, since even medium-sized enterprises (those exceeding at least two of the following levels: 250 employees, a turnover of EUR 40 million or a balance sheet totalling EUR 20 million) have to publish an annual sustainability report.

“Many companies in Finland lack expertise on how to write the reports, and may not be that interested either – but they should remember that this is also a competition issue. If you want to attract investors and raise financing, you need to address these issues properly.”

According to a study conducted by Hanken in cooperation with Nordnet in 2021, the under-40s, women, city dwellers, university graduates and those with Swedish as their first language are more likely to invest based on ESG factors than other groups. Vähämaa, who was one of the researchers behind the study, says that it will be time to start collating new data in the spring of 2023.

“Both the pandemic and the war in Ukraine have probably influenced people's behaviour. I think things have been moving in a more sustainable direction.”

Being a pioneer is profitable

The Nordic countries are pioneers in sustainability issues compared to the rest of the world, but do small countries have any benefit from being sustainability-oriented if the big ones are not? Vähämaa believes that it pays to be one of the first.

“Someone has to start the change. You get to be one of the ones setting the rules for the industry; the ones who are first end up having a clear competitive advantage.” 

What are Emilia Vähämaa's portfolio placement tips right now? 

“In the current global situation, it's a bit difficult to say, but prices have come down a lot, so it's starting to be time to buy. Some industries might benefit from the current situation, such as the energy sector, possibly the health sector, and traditional banks, given that interest rates are rising markedly. As always, diversification over time is important. In general, in the current climate, value shares are winning compared to growth shares.”

Emilia Vähämaa participated in a panel discussion at Hanken's international alumni day held in Stockholm in mid-October. 

Text: Jessica Gustafsson