Letter to the editor on sustainable investing

Per Bolund, Minister of Financial Markets for the Government of Sweden has written a powerful letter to the editor of the Financial Times about a long-term viable investment strategy as we move to a low-carbon economy. This is an issue that we will be addressing more and more in the future, no doubt.

Making sustainable investment easier for the average Swedish saver

Sir, At the recent climate talks in Lima, NGOs and governments again concluded that the world’s current development path is unsustainable. According to the absolute majority of the scientific community, “business as usual” will bring forth dramatic consequences for our societies. Yet, in a scenario where emissions are decreasing in line with what is necessary to ensure that global temperature increase does not exceed 2C, the market is clearly overvaluing fossil fuel companies worldwide.

You pointed out, in your report “UN climate proposals cast a cloud over future of leading oil and gas producers” (December 8) that a legally binding contract for the reduction of greenhouse gas emissions would eventually mark the end for companies such as ExxonMobil and Shell if they do not change their current business models.

The valuation of an oil company to some extent builds on its disclosed fossil fuel reserves and the possibility of actually extracting these reserves. If the world’s political leaders are serious about combating climate change, investors must seriously consider whether exposure to fossil fuel companies is a long-term viable investment strategy.

Some are already doing so. For a household that decides to save a given amount per month in a sustainable way, the selection on offer in the mutual fund universe is enormous. According to Morningstar, an independent research firm, more than 200 mutual funds with a sustainable or ethical profile are available for Swedish households.

The business of sustainable investments is of course a matter of trust, as is the case when shopping for organic groceries. When it comes to organic produce, a third party gives the product its seal of approval, which indicates a specific level of sustainable ambition from the producers. This can then be matched to our own preferences as consumers when it comes to sustainability. In the world of sustainable investing, however, an informed choice requires careful due diligence which only a few investment professionals are capable of. Thus, the Shells or Exxons of the world are difficult for the average saver to avoid.

To address this information asymmetry, the Swedish government has commissioned a report with the task to ease the due diligence process for the average saver. The report will evaluate the tools currently used by sustainable funds, but also map which information is necessary for an investor wishing to make a sustainable investment fund choice. We hope this will spur competition among fund providers to enhance and develop their sustainable and ethical agenda in Sweden and beyond.

Per Bolund

Minister of Financial Markets,

Government of Sweden