The vote marks another setback in European attempts to reform the EU carbon market. The Parliament rejected plans to enable the European Commission to make a one-off reallocation of 900m allowances from 2013-15 to 2019-20. Without this back-loading, the surplus in the system by 2015 is expected to climb from 1.1bn tones to 2.0bn tones. With depressed economic activity, increasing energy conservation and a rising share of renewables, we believe this will keep carbon prices at negligible levels, boosting the competitiveness of coal-fired generation.

The measure has been sent back to the Parliament’s Environment Committee, but a revised proposal is not expected for a couple of months. The Council, which represents the 27 Member States, may now accelerate its efforts to agree its own proposal. Currently 16 nations including

France, Italy, Spain and the UK are in favor. But Germany has yet to produce a definitive position. There will then be a narrow window to finalize a package before EU parliamentary elections in June 2014. With no effective EU-wide carbon-reduction policy in place following EU backwardation defeat and the subsequent slump in CO2 prices, focus could turn to the risk of national governments now deciding to ‘do a UK’ and do it alone.

Critics argue that nuclear is not only dangerous but also unnecessary for tackling climate change; supporters claim the risks are small and that abandoning nuclear would make an already huge challenge even harder and more expensive.

Following the Fukushima accident, most of the developing countries with plans for new nuclear stations, and many of the developed countries, are expected to press ahead, though with some delay for safety reviews. However, Germany, where 23% of electricity was nuclear, has decided to phase out nuclear power entirely by 2020 while also seeking to reduce greenhouse gas emissions 40% below 1990 levels. The jury is still out on how successful this will be.

The world will need about twice as much electricity in 2050 as it does today. Most of the world’s electricity comes from coal (40%) and gas (20%), with hydroelectric (16%) and nuclear (13%) by far the largest low-carbon sources.

In Europe most of the new generating capacity being added today is low-carbon wind. In China, the world’s largest energy consumer, most of the new capacity is coal, although it is also the world’s largest investor in both wind and nuclear. Worldwide, the majority of new capacity is still coal or gas. In 2050 great majority of the world’s energy will need to come from low-carbon sources. In developed countries, such as the EU virtually all of it.

Not surprisingly, energy experts do not all agree on which low-carbon energy technologies will be needed most in 2050. The International Energy Agency project a nuclear share of 20%, while the International Institute for Applied Systems Analysis similarly predict a significant share for nuclear in two of their three headline scenarios, but also offer a scenario in which nuclear has been phased out.

There is a lot of uncertainty about the cost of nuclear power compared to the alternatives. Several recent studies published internationally estimated the cost of nuclear as falling somewhere above ‘low cost’ options such as onshore wind, mini-hydro and some biofuels, but below ‘expensive’ options such as offshore wind and CCS. Comparatively, solar power is expensive today but its cost has been declining sharply and it could emerge as a highly competitive option, especially in sunny parts of the world.

There is no simple answer to this question. If you believe strongly enough that we should phase out nuclear then with sufficiently strong political commitment around the world, this could be done consistently with tackling climate change. However,  we are far from being on course to limit carbon emissions to levels consistent with a 2C target. Ruling out one of the major low-carbon technology options currently available is bound to add to the difficulty and the risk of what is already looking like a very tough challenge.

Balancing the problems of nuclear power against its contribution to climate mitigation (and other energy policy objectives) is an economic growth dilemma as much as it is financial and sustainable dilemma. After all, 2050 seems to be much closer than you can imagine.

This is natural. The majority of our institutional investors are state actors, pension funds, fund companies and other public entities making the corporate governance related risks public and mutual.

This is very different in emerging markets. Stock markets in Asia, for example, are dominated by private individuals and their families. Many companies list only a fraction of their outstanding shares to public markets leaving the control steadily to these families, the so called strategic investors.

From an investor perspective, analyzing corporate governance risks in this context is also very different. The softer factors, understanding the role of the strategic investors for example, can be much more decisive. Around 30% of the Asian companies have more than two family members in the top management board and more than 40% of the time, the strategic investor’s primary financial interest is not the listed company.

Given the prevalence, it is fair to assume that around one third of the time the key strategic decisions of the companies in your Asian portfolios are decided at secluded family dinners rather than at the board meetings and the annual general meetings.

Given the dominance of private families not only within the listed companies, but also within the market rule making bodies, corporate governance rules in Asia do not improve fast enough to cover all the related risks. While major stock exchanges in Singapore and Hong Kong have recently improved their transparency requirements for listed companies, most soft corporate governance related risks tend to fall out of the scope of these general requirements.

Corporate governance mechanisms are multifaceted everywhere. One needs to look at tens of different indicators in order to establish a true understanding whether a certain company has good enough corporate governance mechanism. There are plenty of methodologies to do that, but unfortunately they are time consuming for the practical purposes of private investors.

Given the time and restrictions on resources, as a bare minimum I would suggest to always look at the chairman of the audit committee. If he is not truly independent and does not have a professional background to run an effective audit committee, it is very likely that your corporate governance risks are materializing over dim sum rather than at the  annual general meetings.

The message is loud and clear. While the Asian investors have some catching up to do in formalizing their responsible investment practices, the total number of the sizable players has reached a critical mass. Within the upcoming years, we will see a wave of PRI signatories coming from Asia. This will be driven partially by regulatory initiatives and so on, but more importantly for us Europeans, the investment managers and asset owners in Asia will come up with innovative approaches to responsible investments that we have not yet envisioned.

This upcoming wave of innovation is natural considering the diversity of asset owners within the region. They operate in very distinctive legal and regulatory environment, but also from a very different cultural context. Their unique forms require distinctive responsible investment strategies. We welcome this development. Responsible Investment is still a young industry and we need all hands on deck to figure out how to keep incorporating environmental, social and governance issues in to investment processes.

While we are glad to share our experiences from our long journey within responsible investments in industry conferences, we are also very attentive to understand the specific needs of those clients as well as the solutions the local investment managers create to cater those local needs. This helps us to provide the “best of all worlds” for all Nordea clients.

From millennium development goals to art and business. A multitude of ideas and solutions pile up after days of meetings and educational sessions leaving no space for rest. It is more than clear that the future will be shaped even more by the connectivity of business with society in large. It is a connectivity that demands evolution of current business models, cross fertilization of ideas from different sectors. Throughout the discussions we had during the past week, we have touched upon a number of subjects and areas and one of them is clearly related to the financial sector and to investment management in general. Words and concepts of trust, confidence, long term perspective, lack of client focus have been expressed by each side by the finance sector.

There is a widespread, deserved or not, notion and opinion that we in the finance industry are not connected, that we do not respond, or rather resonance to the song of the world. That our activities do not contribute in their essence to the project of building, evolving a greater future, a future where things are not just as they are but also a reflection of what they can be.

It is easy to draw conclusions, to admit, how sadly that may be, that we have challenges that are systemic, that we lack a vision of the world where we are the integrated force that builds it. When we know this, we can see why and how we have ended up or got stuck in that position. What is also clear is that we know that our role is to actively contribute to create a more long term and stable future for our self and generations to come.

Our vision about what the financial sector can be and how it can contribute to the present and future world, has been resonating for several years. We are here and we intend to stick around for a long time. We like and worship concepts of stability and long term perspective. We know that taking responsibility for environmental and social issues is the right thing to do, and we know that our connectivity to the present and future world depends on our ability to actively take part in solving challenges and providing solutions. Or as one of the delegates in Harvard said to me: “Sasja, all good business is an art.”

Read the report and learn more about what we’re doing.

However, Finnish companies tend to lack international peers where social issues are concerned. Relationships with labour unions tend to escalate into strikes too frequently, the health & safety performance leaves considerable room for improvement, and only recently the companies have been able to work together with government and local communities to prevent the adverse impact of unnecessary corporate restructuring and related lay-offs.

Mumbai is a mirror of the numerous challenges and opportunities of modern India. The city (and the country) is the definition of a demographic and economic explosion. India’s growth rates are stunning, and the population has passed 1 billion. Poverty and slum areas are growing with the speed of light, but so is wealth. More the 300 million people, corresponding to the entire US population, now belong to what might be referred to as the new economic muscle of India, the middle class.

Most companies operating in India are facing challenges in terms of labour rights, human right issues, environmental protection and not least corruption. Apart from being the worlds’ largest democracy India is also a very young democracy that often fails to live up to international norms and to protect vulnerable groups in the country.

Many companies do, however, have a sound business model. Nordea is in Mumbai to meet companies and to identify Indian companies performing well from an environmental, social, governance as well as financial perspective.

One of the potential companies for an investment portfolio is Jain Irrigation. The company was founded in 1963 by the Jain family. They had been farmers for generations, but now the company operates in 123 countries around the world. As part of its ranges of products and services the company produces and sells organic fruits to the world markets but its core business is still small-scale irrigation systems for Indian farmers.

Another company is Phoenix Mills. Originally, the company ran mills in central Mumbai but today the core business is shopping malls. The rapidly growing number of consumers in India’s megacities has a huge potential and companies like Phoenix Mills are urban pioneers. However, acquiring land to develop in India can be a tricky business and corruption and bribes are often involved. Phoenix Mills has therefore decided only to buy land from other businesses to avoid being involved in corruption. Using unskilled and underpaid labour is another issue but Phoenix Mills knows the risks when involved in both construction and operation of shopping malls and hotels – especially when there is a need to attract sceptical foreign investors to finance the company’s wish to expand.

See the video from the team’s visit to India

The main conclusions from the survey are that sustainability issues are high up on the agendas in an increasing number of companies. Best practice examples include companies that integrate sustainability issues across all levels of their business and companies that have a board of directors that takes considerable responsibility for sustainability issues. However, the pace of change at a third of the companies is far too slow, and the gap has widened between them and the companies at the forefront. In general, these companies have few guidelines in place, a low level of transparency and a board that takes limited responsibility for sustainability issues.

To learn more read the report or visit www.hallbartvardeskapande.se.  

Read the report in Swedish with an executive summary in English

Investors behind Sustainable Value Creation are Andra AP-fonden, DNB, Fjärde AP-fonden, Folksam, Första APfonden, Nordea, meta asset management, SEB, Skandia Liv, SPP, Handelsbanken Asset Management, Swedbank Robur, Svenska kyrkan and Tredje AP-fonden.

Ylva

Italy is among the worst performing countries in Corruption Perception index. Tax evasion is a prevalent problem and, most worryingly, the big ticket incidents, at least used to be, too frequent. For these and many other related reasons, investment analysts tend to assume higher cost of capital for Italian companies.

With this in mind, Nordea wanted to explore the risk of Italy related corporate governance, corruption, tax evasion and embezzlement in our portfolios. We defined the largest Italian companies within Nordea portfolio’s and travelled to Rome and Milan for three days to meet six of them.

Our findings confirm that corruption is an endemic problem within Italy ranging from recommendation system to get a job, to prevalent use of cash in small businesses to enable tax evasion. In the business environment, the Italian law can make corporations liable for the actions of the individual employee, which gives a strong initiative for a company to establish at minimum a code of ethics for employees to mitigate the liability of actions resulting from actions of a corrupt employee.

Because of the prevalence of corruption and the liability legislation, the largest companies have good programs in place to proactively prevent the corrupt practices and retroactively monitor the compliance. The best practices, which would definitely benefit the Nordic companies as well, include comprehensive communication, both virtual and class room learning, involving external expertise, engaging top management in the effort and linking compensation to the trainings, Best retroactive measures revolve around well-functioning, externally available whistleblowing mechanism, which has to be backed up with stringent processes to handle the incoming cases. Naturally, transparent reporting on both proactive and retroactive measures is always appreciated. This applies not only to Nordea Asset Management, but also to all responsible investors looking at companies ESG performance.