Q&A on Nordic Swan Ecolabelled funds
There are lots of questions about Nordic Swan Ecolabelled funds. Why has Nordic Ecolabelling chosen to ecolabel investment funds in the first place? What requirements must be fulfilled? How are the funds evaluated? What companies are allowed in a Nordic Swan Ecolabelled fund? What companies are NOT allowed? Below you can find a comprehensive Q&A about Nordic Swan Ecolabelled funds.
The current production and consumption patterns in our world are not sustainable. Nordic Swan Ecolabelling is convinced that funds have an important role to play in influencing companies to work more sustainably, as funds control significant capital assets.
There is a strong demand for an independent and reliable evaluation of funds, both among consumers and investors. A Nordic Swan Ecolabelled fund represents a sustainability-labelled alternative for savers and professional investors, and an instrument for fund management companies to show that their funds fulfill stringent requirements.
When many savers, professional investors, and fund managers join forces to exert influence, we are convinced it will have an effect. Nordic Swan Ecolabelled funds have good opportunities to exert influence by:
- providing markets with a clear stance on which sectors and companies that are not sufficiently sustainable.
- requiring sustainability data for analysis and for investing a majority of assets in companies with strong sustainability activities
- openly reporting the fund's holdings every third month.
- openly reporting annually on the fund's sustainability work.
- practicing active ownership by voting and being in direct dialogue with companies.
The Nordic Swan Ecolabel for investment funds builds on four ways in which funds can influence companies:
Exclusion: The fund must refrain from investments in selected industries and companies that are furthest from sustainable. Read more about our exclusion requirements here.
Inclusion: The fund must conduct a thorough ESG analysis of possible investments and select better companies from a sustainability perspective. Read more about our inclusion requirements here.
Transparency: The fund must regularly report on its actual holdings and publish an annual report on the sustainability activities of the fund.
Active ownership: Nordic Ecolabelling encourages funds to be active owners, which include voting at annual general meetings and engaging with portfolio companies. This is a points-score requirement, as it is not always relevant to exercise active ownership.
The fund must fulfill 25 obligatory requirements. In addition to these, the fund needs to collect a minimum of 6 out of 16 points from various points-score requirements (5 out of 16 for bond funds).
In conjunction with the application, Nordic Ecolabelling inspects the fund manager on-site. The manager must document clear processes for how companies are disregarded and selected in accordance with the Nordic Ecolabelling requirements. They must also document and show that the requirements concerning transparency and active ownership are fulfilled. During the evaluation process, data used for calculations, as well as environmental, social and governance (ESG) analysis reports and other relevant documentation confirming compliance with the requirements, must be presented for examination. Nordic Ecolabelling performs an on-site inspection as a part of the licensing process and make regular controls during the licence period.
No. A Nordic Swan Ecolabelled fund must exclude companies and industries that are furthest from sustainable and the fund must invest a majority of its assets in companies with a strong performance on sustainability. This does not mean, however, that all holdings of a Nordic Swan Ecolabelled fund will be perceived as “sustainable”.
Nordic Ecolabelling does not review and assess every company in a fund. Instead, we set up rules for how the fund manager should think, analyze and assess. In this way, the most problematic companies are avoided, and many of the “best” ones are selected. We are also convinced that we can achieve an effect by applying our requirements of analysis, transparency and active ownership. Moreover, it is possible to collect points by investing in companies operating in “green” industries such as renewable energy, energy efficiency, waste management, and organic agriculture.
In that case, the fund manager must either sell the holding or notify how they intend to handle the situation to influence the company. Information must be published on the fund's website within three months, with details of how the fund management company assesses the situation, what they will do to influence the company, which results it is possible to achieve, and when the situation can be expected to be resolved. If the fund manager does not manage to influence the company to rectify the situation, the holding must be sold off within 24 months.
A strategy of selling dubious holdings directly can sometimes have adverse effects. Retaining and engaging with the company instead may even yield more constructive results.
The Nordic Swan Ecolabel can be awarded to funds that, in a credible and well-documented manner, can present a robust methodology meeting all requirements set by Nordic Ecolabelling. An index fund is designed to track the performance of a market index as closely and cost-efficiently as possible. Index funds can meet the requirements of Nordic Ecolabelling by investing in an index that selects companies in line with the criteria.
Yes, but the maximum share of indirect holdings that lack a sustainability analysis is restricted to 5 % of the fund, as an important purpose of Nordic Swan Ecolabelled funds is to influence companies in a more sustainable direction. A larger ratio of indirect holdings is permitted if it is ensured that these holdings also fulfil all other requirements.
Nordic Ecolabelling sets a requirement that the fund must be transparent with all holdings. On its website, the fund manager must report which shares and bonds are held in the fund and update the information once a quarter. At least once a year, the fund management company must present a report describing the sustainability activities of the fund. For example, how the fund has excluded, included, voted, and conducted dialogue with companies in which the fund holds shares.
Nordic Ecolabelling has no requirements related to the fund's return or risk profile. But in the long run, we are convinced that investments with a sustainability profile will be worthwhile.