By Hamlin Lovell, NordicInvestor

This interview is part of our upcoming report on ESG in the Nordics

NordicInvestor interviewed Outi Helenius, Head of Sustainability at Evli, who is the first person holding this role to join the board of the fund management company. She is currently grappling with data gaps, the subjectivity of European sustainability regulations, and differences between the regulations and normal market practices.

ESG Priorities and Coverage

Evli’s top priority is the urgency of climate change, which leads to its Climate Change principles and targets.

At the investment level, the long term target is carbon neutrality by 2050, and an interim target is for 2030 carbon emissions to be 50% below those in 2019. At the firm level Evli, wants its own operations to be carbon neutral by 2025.Its broader policies on Responsible Investing, including social and governance, were set in 2016.

ESG applies to all asset classes, but the method of implementing it can differ. “For external managers and funds of funds ESG due diligence may lead to side letters being negotiated,” says Helenius.

Data and reporting: building internal databases to fill gaps and inconsistencies in external data

It is easier to get data for listed companies than for unlisted ones, which is relevant not only to private debt and private equity but also corporate debt and money market funds, where many issuers are private companies. “Roughly 50% of the underlying companies for high yield debt are not listed and it can be challenging to find data, including for some Finnish companies,” says Helenius.

For instance, the 2020 ESG reports for various Evli’s funds show that between approximately 3% and 70% of holdings are not rated by MSCI on best in class rankings, and a similar percentage not rated by MSCI according to UN Global Compact reputational risk criteria, including environmental, customer, human rights, labour and governance issues. Data can also be scarcer for smaller companies. A nuance is that where companies have different instruments some may be covered and others not. For instance, the equity of a company may be rated by MSCI, but the commercial paper, which has no ISIN code, might not be, which could lead some funds to report a higher proportion of holdings not being covered.

Scope 3 carbon data can be lacking across all companies. “We see huge differences between two different data providers, MSCI and ISS. We have also been building our own data management systems, processes and database for the past 5 years,” says Helenius.

Apart from gaps in coverage, another problem with a lot of ESG data is its backward-looking nature. “We would like to see more forward-looking data, on climate change and physical risk analysis,” says Helenius.

Evli is currently working with two of the largest data providers but is open minded about smaller and newer ones. “We expect that data providers will continue to see some consolidation, and there should also be room for startups to develop more innovative ways to measure ESG”.

It is also difficult to compare reports from different external asset managers, though European initiatives on company reporting may help here. “We hope they might become more standardised after the EU Corporate Sustainability Reporting Directive replaces the Non-Financial Reporting Directive. This should lead to more harmonised corporate ESG reporting for listed companies above a certain size. We are also pleased to see that auditors will assess the data, which is currently not subject to much verification”.

Exclusions, best in class, benchmarks and transition: majoring on transition

There are two exclusion lists to cater for client preferences. The general exclusion lists covers tobacco, controversial weapons, controversial lending, and adult entertainment, as well as thermal coal and oil sands above a 30% threshold, and energy peat. Some products such as corporate bonds and some equity funds have a stricter exclusion list that also covers alcohol producers, Gambling, Weapon manufacturers, Fossil fuel extraction and mining and Fossil fuel refining. All active funds integrate ESG, and some discretionary clients have mandates with a more ambitious approach.

The exclusion lists are not published, and have not been growing. “Portfolio managers analyse companies on a case by case basis, considering their future plans and discussing them with companies,” says Helenius. Companies involved with controversial weapons have become investable after they have exited the controversial weapon related business.

Evli is not yet using ESG, or Paris-aligned benchmarks.
We have been analysing ESG and Paris-aligned benchmarks and closely following the development. Of Evli Fund Management’s AUM, roughly 70% is in corporate bond funds, and ESG benchmarks are still being developed for corporate bond side”.

Best in class analysis is considered, based on MSCI data which ranks some companies relative to their sector peers, on a scale from AAA to CCC. “Evli is currently invested mainly in companies with an A rating but managers can invest in CCC rated companies if they are confident about future plans such as carbon transition,” says Helenius. Evli has been publishing ESG reports since 2017, and the weighted average MSCI ESG rating for its holdings has been trending upwards.

Impact Investing and SDGs

Impact Investing includes the Global Impact Forest Fund and a green corporate bond fund. Currently UN Sustainable Development Goal 13, on climate change, is being prioritised.


Engagement with companies is increasing, and Evli directly engaged with 14 firms over the last quarter. “The main topic is climate change and climate targets including science based targeting,” says Helenius. Engagement is done both in Finland and internationally. Outside Finland, Evli also engages via the Carbon Disclosure Project, Climate Action 100+ and the UNPRI.

Climate targets and reporting: highlighting transition

A committee for decarbonisation aims to reduce emissions, through engagement and transition, not only exclusion. Evli has been reporting carbon footprints (using TCFD standards) for several years and is now expanding into a wider range of indicators. Evli publishes a separate ESG report for each of 25 funds, which invest in Nordic equities, global equities, smart beta equity factors, investment grade and high yield corporate bonds, emerging market credit and green bonds. There is also an asset allocation product.

As well as carbon footprints, Evli reports MSCI’s various carbon transition categories: product transition and operational transition and solutions as “positive” category. Asset stranding is a negative one but the majority of holdings do not come under any of these transition headings and are classified as neutral.

EU Sustainable Finance Framework: Taxonomy is not yet final, rules must leave room for transition

She is pleased to see that the Taxonomy is science based. She expects that, “the Taxonomy will, to some extent, create new winners and losers, and make it easier to choose products, but the details are not yet finalized. We await final details of targets, and guidance on how it treats natural gas and nuclear power. Currently, many sectors are outside the taxonomy”.

Helenius expects that the SFDR will increase transparency around sustainability risks, but the subjectivity of regulations needs to be borne in mind. “Whether the EU sustainable finance legislation moves impact investing into the mainstream partly depends on how impact investing is defined. For instance, whether the Principle Adverse Impact (PAI) measures are really impact indicators is open to debate,” says Helenius.

It is also too early to tell if the EU rules will drive new forms of collaboration between investors, asset managers, companies and consultants. “Evli is already collaborating through groups such as FINSIF,” says Helenius.

Evli’s own funds are a mix of article 6, 8 and 9. Most of the mutual funds are article 8 with two article 9. Evli might still allocate to some funds that are article 6 under SFDR, but has moved its passive index trackers from article 6 to article 8. The SFDR is one of many factors that Evli considers in allocating to funds. Evli expects to allocate mainly to article 8 funds under SFDR. “We would like to say “8.5” but we are not yet confident on article 9 because we want to leave room for transition. We would rather stay invested, engage and influence transition, than exclude firms,” says Helenius.