A conversation with Christophe Girondel

Ten years after the launch of Nordea’s first ESG STARS Strategy, Christophe Girondel, Global Head of Institutional and Wholesale Distribution at Nordea Asset Management (NAM), discusses the role of ESG solutions – also against the backdrop of accelerating regulatory change.

NAM’s first ESG STARS strategy, the Nordea’s Emerging Stars Equity Strategy, recently celebrated its 10-year anniversary. What was the initial idea behind the launch of the strategy?

Put simply, our belief at the time was that integrating environmental, social and governance (ESG) considerations would give us an edge in identifying the corporate stars of tomorrow. Fast-forward a decade, and despite the inevitable movement in markets and personnel, our concept remains unchanged. Today, we have 17 ESG STARS strategies, both equity and fixed income, and our belief in the power of ESG integration is stronger than ever.

What is the edge of NAM’s ESG STARS range when it comes to ESG?

In addition to utilising our own proprietary models and ESG scoring, a primary distinctive feature of the design of our ESG STARS strategies is the element of true ESG integration. ESG is not an overlay; it is a portfolio management decision. This is also reflected in the team setup. We have made a point of ensuring that our ESG analysts work hand in hand with the portfolio managers as part of one integrated team – something we believe is still quite unique. Engagement is another key part of the ESG STARS concept. We foster change with our investments by engaging with the companies or sovereign entities we invest in around specific ESG topics.

What has been the investor reception to NAM’s broader ESG range?

Looking at the industry overall, significant flows have been allocated to thematic ESG strategies in recent years. With such a long track record in the ESG space, we have been fortunate to benefit from the trend through our Sustainable Thematic boutique. Building on our Climate and Environment capability, which is renowned across Europe, we developed a compelling concept to also address the key issue of societal inequality, with our Social Empowerment solution. Now, we are on the cusp of further change: the upcoming MiFID II requirements will integrate sustainability into the suitability process for end clients. As a consequence, we expect ESG to go beyond thematic and become truly mainstream. We believe our ESG STARS range will play a central role here, too.

In what sense?

Over many years, we have been able to forge strong partnerships with our clients across Europe. Today, we manage in excess of EUR 17.5bn (as of 30.09.2021) across our ESG STARS range, in both equity and bond strategies. Our clients understand our history and credentials, and our longstanding commitment to ESG. We are now increasingly becoming a trusted partner for their growing responsible and ESG fund allocations and we seek to provide them with all the building blocks they need.
While the Nordea’s Emerging Stars Equity Strategy was our first vehicle, we have been extremely pleased by the reception that our other ESG STARS strategies have received in recent years. For example, despite some scepticism surrounding the value of ESG within the US market, our North American Stars Equity Strategy has proven that it is possible to extract alpha in even the most efficient market, through the identification of sustainable corporate leaders. In addition, while our fixed income ESG STARS strategies are a more recent concept, the power of the ESG integrated approach within the bond universe is also being increasingly recognised by our clients.

Could you tell us more about the ESG STARS concept in relation to fixed income – are there major differences from the equity strategies?

As on the equity side, the portfolio managers of our fixed income ESG STARS solutions work side-by-side with ESG experts from our award-winning Responsible Investments Team. The only difference is the desired outcome of our research. For our analysis of equities, we are seeking to identify competitive advantages resulting from higher ESG standards – these companies are more likely to be the winners of tomorrow. For fixed income, performing our ESG valuation for corporate and sovereign issuers helps to better assess the credit risk of the underlying investment. All issuers are given an internal ESG score, which represents our view on how well the company or sovereign entity is positioned in relation to ESG risks and opportunities.

What are the benefits of investing in an ESG STARS strategy for a retail client?

As an example, let’s take a look at the recent COP26 summit that has just taken place in Glasgow. Obviously, the most important item on the agenda was decarbonisation of our economy, the ‘net zero’ target. While people often feel they cannot make much of a difference in tackling such wide-ranging issues, by allocating to our ESG STARS strategies, your investments will have a significantly lower carbon footprint than the benchmark. While climate change and the transition towards a low carbon society are very complex issues, seeking to reduce the carbon footprint of your investment is a step we all can take today. At NAM, we call it ‘returns with responsibility’.

The upcoming changes to MiFID II are likely to increase the already complex requirements for advisers. For those needing help in navigating these challenges, what steps are you taking to support this journey?

At NAM, it is important for us to not only talk the talk when it comes to ESG, but to walk the walk. We know how crucial it is going to be for advisers to get up to speed with the rapidly evolving ESG and sustainability space. Thus, we want to be there to help them on every step of the way. One initiative we recently rolled out was a free responsible investing online learning tool, which provides a quick and easy introduction to the world of sustainable investing. The training also utilises engaging videos, animations and case studies to make the learning experience more enjoyable. A personalised certificate is generated upon completion, which is recognised with CPD credits in several markets. In addition to assisting in education, it is also extremely crucial for us at NAM to be open and transparent in our disclosures. For example, we recently included ESG metrics in the monthly factsheets across our ESG-aligned range. In addition to this, we revamped our monthly ESG Report, which contains all the metrics from the factsheet, and so much more. The report includes disclosures like exposure to CO2 emissions and high-impact fossil fuel reserves, human rights violations and governance controversies. Last but not least, we also document the engagement activities of NAM’s Responsible Investments Team.