By Hamlin Lovell, NordicInvestor

NordicInvestor interviewed Markus Lindqvist, Head of ESG at Aktia Asset Management in Helsinki, Finland, to highlight some of the distinctive features of its ESG policies. Aktia manages EUR 10.4 billion for institutional and retail clients, in the asset management division.

Sovereign Debt

Aktia applies ESG to all asset classes and products and was one of the first managers to apply ESG to sovereign debt: “we have been applying ESG to sovereign debt since 2006, when ESG was not even a buzzword at the time, and was not as mainstream as it is now. When we started building sovereign debt solutions, we saw strong connections between economies and political, social and economic aspects. We integrated a lot of ESG factors into our quantitative process as a basis for our country selection model. We also use a qualitative approach for shorter term developments. This leads to a ‘traffic light’ rating which can rule out investment in a country’s government bonds (but not other asset classes or instruments). We only finance governments with a positive development trend and the direction of development is key. We recognize that low-income frontier countries cannot have the same level of social standards as Nordic countries,” says Lindqvist.

Examples: Venezuela, Argentina, Turkey and Uzbekistan

We have not invested in Venezuela in 13 years, regardless of its benchmark weighting – we have no need to track an index,” he points out.

If some countries have always been off limits, other countries can go up – or down – in terms of ESG rankings.

Argentina became un-investable for government bonds after a regime change led to development in the wrong direction in late 2019”.

Turkey has gone down in 2018 due to negative political developments, in terms of both human rights and independence of the central bank as well as weakening of checks and balances and rule of law. No single factor would trigger a review as it is based on a holistic view of a range of factors”.

Some countries that were excluded can be invested in if they improve. For instance, “Uzbekistan used to be non-investable due to concerns about forced labour and child labour, but now ILO reports show really positive developments together with the current regime’s positive development path since 2016. We used to travel a lot but now we do virtual meetings. We expect the on-site country visits to continue once safe to do so.”.

There could be more changes this year: “it is a dynamic approach. We re-evaluate the situation and monitor countries continuously”.

Impact Bonds: Cambodia, Kenya, and Chile

Though Aktia has excluded sovereign debt in some countries, the manager is also seeking to finance positive change through impact investing.

Aktia has strong relationships with multinational development banks such as the EBRD, and the IFC (the private sector arm of the World Bank) for investing in local currency bonds, and finance development projects related to climate or social issues.

Aktia already has these types of investments in around 20 countries. For example, “some 18 months ago, we did our first deal in Cambodia with the World Bank, funding the education sector. Our frontier market strategy took all of the allocation”.

“In Kenya we have invested over the years in infrastructure bonds that finance improvements in the energy sector, and also irrigation projects to improve food security”.

“In Chile, we have invested in green bonds since June 2020, which are some of the only sovereign green bonds”.

Exclusions Vary By Asset Classes

Aktia has just updated its exclusions list, adding cannabis, adult entertainment and predatory lending to the previous restrictions on weapons, tobacco and gambling.

Some aspects of the exclusion policy apply differently to equities and corporate bonds.

In one sense, the exclusions are stricter for bonds: “in equities the coal and peat threshold is 25%. A lower threshold of 5% for all fossil fuels applies to corporate bonds, partly because it is easier to find another bond with the same yield, return and risk characteristics. Similarly, alcohol is excluded from corporate bonds, but not equities”.

In another sense, there can be more flexibility on the corporate bond side: “for equities carbon risk is measured in terms of the whole company. For bonds, carbon risk can be assessed in terms of what the bond is financing. So even if an issuer has heavy overall carbon risk, we can invest in their green bonds”.

The policy is flexible on corporate bonds because, when it comes to fossil fuels, Aktia wants to emphasise transition rather than exclusions. If companies have serious plans to reduce their carbon emissions, they can still be invested in.

Data and Reporting

Aktia uses external ESG scores but not exclusively and finds that its own investment professionals also need to do their own research and form their own view: “second opinions from our analysts and subjective judgements are often required – we cannot outsource ESG”.

Nonetheless, external providers do provide some useful data inputs. “For instance, local Finnish startup, The Upright Project, helps us to assess both positive and negative impact on different criteria, such as environment, social and Health”.

Sophisticated analytics are also used: “a complete picture of impact needs to track the supply chain and value chain, and use AI and machine learning to do so. This feeds into a quarterly impact report, showing net impact for equity and corporate bond funds”.

Aktia’s carbon reporting on footprints and intensity already includes scope 3 measures, amongst other measures: “we have access to a very broad and deep climate risk assessment tool from ISS ESG, which is used for equity and corporate bond funds. It includes physical climate and transition risks, and scenario analysis to measure portfolio alignment. It also includes a new tool for calculating Climate Value at Risk. We see plenty of asset managers committing to net zero targets and working on developing a new climate strategy”.

Aktia reports on its direct engagements in a general sense mentioning the topics, but does not go public on specific companies. For its pooled engagements eg via ISS, it can sometimes publish examples of where Aktia has selected from a menu of engagement issues to participate in. Aktia also reports on its active ownership such as proxy voting. 

Aktia’s emerging market debt funds report quarterly on SDG performance versus the universe and development trends.

The range of reporting is expanding all the time: “we are continuously working on improving our reporting to meet growing demand from institutional and retail investors”.


The new EU SFDR rules are being finalized and phased in over the next two years and are starting to take shape. “Most of our strategies are classified as “article 8” or “light green” under SFDR, but do also expect demand for “article 9” or “dark green” in future”.

“Some strategies are not currently easy to fit into the SFDR framework. We have a commodity fund where the questions do not seem relevant”.

“We are also waiting to see how our external funds are classified”.

External Managers

External managers should have a long term aim to match Aktia’s own policies but they do not need to tick every box immediately: “we encourage external managers to improve their policies and reporting, but do not expect them to be perfectly aligned with in house policies because it is impossible for different asset managers to have the same criteria. There are certain minimums however. All external managers are currently UNPRI signatories, for instance”.

Future Focus Issue: Biodiversity

The ESG agenda is evolving all of the time and Lindqvist expects biodiversity will receive increasing attention: “climate has been the number one topic but biodiversity will be the next big thing, and we do not yet see much investments related to it. There is a link between climate and biodiversity, which also focuses on land use, deforestation, pesticides, organic food, and increasing meat consumption. There is a negative spiral feeding into biodiversity loss, and increasing climate change. We need to develop more understanding of what biodiversity means”.