Engaged Tracking Blog

How Do We Maintain Scandinavian Leadership in Climate Finance?

12/12/16 10:37 / by Pekka Piirainen


Scandinavian financial institutions are at the forefront of integrating climate risk mitigation into their investment strategies, leading the way in shaping sustainable financial markets. How do Scandinavian asset owners and investors maintain this leadership position? Below, we outline three specific strategies themed around financial innovation and investor demands for transparent and robust carbon data. In the context of climate change and economy-wide decarbonisation, a status quo approach to investment will not suffice.

To stay at the front of the investor wolfpack, Scandinavian funds need to address three key issues:

  • Scope 3 Matters

Forward-looking, prudent investors must account for more than just the direct emissions in their equity and bond holdings if they are to capture a clear picture of carbon risks. They must also factor in Scope 3 (supply-chain emissions) that generally represent more than 75% of a company’s emissions.  

  • Not All Low-Carbon Benchmarks are Created Equal

Portfolio benchmarking is an area that requires more critical analysis from Scandinavian investors. Sustainability indexes that contain fossil fuel companies among their top ten holdings are likely to raise questions from pension fund contributors and regulators who are demanding genuine action on climate change. The overweighting of high-carbon companies is especially problematic when low-carbon outperformance is increasingly rewarding investors taking serious decarbonisation measures. Scandinavian investors should re-evaluate whether their sustainable and “low-carbon” investment benchmarks are appropriate to capture both economy-wide carbon reductions and higher risk-adjusted returns.

  • Transparency is Key

Transparency is a critical issue in the selection of an appropriate low-carbon strategy. Non-transparent methodologies in index construction are problematic for investors, with potential concerns arising over whether enough information is available to evaluate carbon risk exposure. Opaque index construction methodologies can make it difficult for investors to ascertain whether management fees are justified in terms of portfolio carbon and market risk reductions linked to the energy transition. Public pension funds are coming under increased pressure on transparency. In Denmark, a strong fossil fuel divestment campaign has seen several pension funds, such as DIP and ISP, forced to take a more open approach. Lessons can be learnt from the Norwegian Government Pension Fund Global (GPFG). The world’s largest sovereign wealth fund allows the public to evaluate its holdings over the past 15 years. Such transparency is becoming the standard for investors in responding to public concerns over where their money is invested.


Scandinavian investors have shown strong leadership over the past decade in accelerating the transition towards a low carbon economy. While carbon footprinting has become the norm amongst Scandinavian asset managers, this is only the beginning. Methodological approaches to footprinting and portfolio emissions reduction that do not consider supply chain emissions are in danger of leading investors astray. Norwegian and Swedish funds have been spearheading the footprinting effort. For example, the Swedish AP buffer funds have set the scene for their global peers by standardising portfolio emissions accounting. These efforts should be celebrated but Scandinavian investors must continue to seek out new and innovative approaches to low-carbon investing to stay ahead of the chasing pack.

Author: Pekka Piirainen is an Investor Engagement Manager at ET Index Research and a native Finn.

About ET Index Research: Read more about ET Index Research’s services for forward-looking, prudent investors who want to identify, understand and manage their portfolio carbon risk.

Services include:

  • the ET Carbon Scorecard, which helps investors clearly communicate their carbon footprint and exposure to climate-related financial risks (goes beyond carbon footprinting to include additional forward-looking ESG metrics).
  • the only low-carbon and fossil-free index series based on a fully transparent, public ranking of all index constituents, via the ET Carbon Rankings. Different emissions reduction options and custom strategies are available. ET Index Research actively engages with constituent companies to improve disclosure and lower emissions on behalf of clients.
  • the index series as a main or supplementary portfolio benchmark.




Pekka Piirainen

Written by Pekka Piirainen