Article written by Peter Lindström, CFA Society Finland Board Member

*Peter Lindström, CFA welcoming everybody*

ESG and sustainable investing have raised significantly more interest from our members over the past few years and CFA Society Finland has been active in this front as well. In the event “Next Steps in ESG” on March 3rd the objective was to go a step further and to take a look at what the ESG world looks like in the future, from both investment opportunity and data development perspective.

Our members had also indicated that they would like to hear more real-life examples from investors and we were pleased to have Dr. Ulf Erlandsson, CIO and Portfolio Manager of Diem Green Credit strategy, as a keynote speaker to kick off the event. He has also been instrumental in building the curriculum for the new CFA UK Certificate in ESG Investing having written a chapter on portfolio construction for the exam study materials.

*Dr. Erlandsson gave a much appraised keynote speech.*

Dr. Erlandsson, a veteran in fixed income investing, has increasingly turned his focus towards climate investing with a fixed income hedge-fund strategy. His presentation on "Financial asset trading, portfolio construction and climate change" took a very tangible approach into ESG investing in this space. Dr. Erlandsson illustrated via real-life examples how climate change related topics have an effect in multiple ways. This could be via an increased cost of capital as a result of write-downs and changing outlooks of future expectations or through a higher reputational risk when operating in controversial industries. In addition, Dr. Erlandsson illustrated how the financial theories behind diversification benefits can still lead to investors including companies in their portfolios that do not fare well in ESG topic areas when there is low correlation in comparison to other assets. The theoretical background was complemented by real-life trade samples. One case focused on a climate relative value transition approach using the alpha of ESG leaders versus laggards and combining it with traditional credit relative value process. Another example illustrated how to take advantage of credit curves underpricing fundamental risks for fossil fuel providers.

After the break, a panel continued with a deep-dive into the future of ESG data on the topic of "Artificial Intelligence and sustainable investing: how ESG data and tools are evolving to provide better and more holistic insights?"

Moderated by CFA Society Finland’s board member Niina Arkko, the panel offered three different points of view.

Annu Nieminen, founder and CEO of The Upright Project, introduced their methodology focusing on measuring the net impact companies have via their products and services. The Upright Project uses machine learning to quantify companies’ net impact on people, planet, society and knowledge and bases its innovative methodology on open access scientific data as well as other open datasets.

Ms. Nieminen was followed by Mikael Lehto, CFA, customer success manager at Refinitiv, one of the leading financial market data providers who also have increased their focus towards ESG and sustainable investing research. Mr. Lehto emphasized how important it is for data providers to focus on delivering high-quality normalized ESG data that can then be used as part of the overall investment process in an integrated way.

Antti Malava from Danske Bank provided an asset manager’s view into the conversation. Mr. Malava emphasized that with the influx of ESG data and low correlation among the scores of different providers partly related to differing methodologies, it is important to develop a proprietary view and take ownership of the way that ESG is approached at the asset manager side. At Danske Bank, Mr. Malava’s team has created their own dashboard and scoring system to support this point of view.

As final remarks, it is clear that the world of sustainable investing is increasingly more rooted in the mainstream investing world and at the same time more complex and dynamic with increasing demands on the data and impact side. Over the last two years, there have been already huge developments inside the ESG industry and we do not see the pace of change decreasing.

Thank you again for all the speakers for their participation and insights, we look forward to all feedback of the event and are interested in hearing suggestions for future topics of interest as well.

Keynote speaker:

Ulf Erlandsson is a portfolio manager and CIO of Diem Green Credit Strategy, incubated by Sector Asset Management. He is the author of books and articles such as “High-frequency CDS index trading”, “Systematic CDS index trading”, “CDS Curve trading handbook” and “Empirical analysis of the credit cycle”. Dr. Erlandsson has been a contributor to the ESG Certificate offered by the CFA Society Finland and is a Board member of CICERO Shades of Green. He received his Ph.D. in Economics from Lund University.

Panel speakers:

Mikael Lehto, CFA, Customer Success Manager, Refinitiv

Annu Nieminen, Founder & CEO, The Upright Project

Antti Malava, Chief ESG Analyst, Danske Bank

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