Getting investments in the green

Being a sustainable company requires both effort and stamina. But often, a lack of resources and an overwhelming feeling of not knowing where to begin can impose obstacles. That’s where Ethos and Jonathan Milläng, Head of Sustainable Finance, can help. We had a chat with him on how to get sustainability work off the ground and on the agenda.

What kind of sustainability work does Ethos perform?

Basically, we identify where in the value chain a company’s greatest impact is. Today, Ethos provides services within five different areas: Sustainable Business Development, Human Rights & Anti-corruption, Sustainable Finance, Environmental Affairs, and Sustainability Reporting. Our clients often start by analyzing how they can work with sustainability issues, both to reduce their negative impact and maximize the positive – what is called a materiality analysis. Many companies unfortunately focus on the wrong things – for example, IT should not invest energy in ensuring that employees drive electric cars, but rather make sure that all the energy used to store info in the cloud or on company servers comes from a renewable source.

What types of companies ask Ethos for help?

Ethos has customers from all walks of life and we are contacted by companies from very different sectors and industries. Regardless of where the customer comes from, we pretty much have the same MO; step 1 is a risk and impact analysis in which we look at what may be, or already is, critical for the business or fund and step 2 is establishing an action plan for how to maximize/minimize positive/negative impact within the areas of environment and climate change, labor rights, human rights, and anti-corruption as well as the governance of all of these areas based on the nature of the business or assets under management.

What is the most common inquiry for you?

Personally, I’m mostly asked to help our financial clients reach sustainability targets and compliance with new regulations. There are a lot of incoming new legal requirements from the EU on how companies should establish and utilize their influence. The idea is to get away from diluted sustainability reports where you just sort of write that you have a charity initiative, or that you only serve vegetarian food in the mess hall. The EU wants to ensure that companies work on their core business and improve sustainability where it truly matters.

You can’t just simply throw money at tech start-ups and hope they’ll solve everything

Is sustainability work difficult?

Both yes and no. It becomes easier the more people learn about the issues and get used to working with them in the right way. I think it was harder some years ago when people didn’t think it was as financially material. On the other hand, there’s a lot still to be done on issues concerning social sustainability and human rights. This is still uncharted territory and sadly you’re likely to find slavery and/or child labor in almost every complex value chain you scrutinize. This is due to several reason; the fact that it’s not legally required to work with human rights issues in your full value chain and the fact that neither investors nor customers are clear about the actual requirements and regulations in all markets. This uncertainty makes it difficult to accept and carry the costs of working full-on with human rights issues. But that does by no means mean that there aren’t companies that has this it on their agenda. There are several good examples in every sector and the best one’s are those who’ve already started to report on these specific issues – they’ve identified the problems and are working to solve them. In the last couple of years, we’ve noticed an increase in how much people actually consider sustainability issues from a business perspective. The sustainability strategy must be in line with the business strategy – and not be considered as something you do half-heartedly or as a side business to earn a little goodwill. If you do not understand how you are affected by climate risks, you are more exposed. But if you acknowledge this and take active decisions to be sustainable, you’ll not only do good for the planet but also make a better investment case because you are better prepared than the competition.

What is a green investment?

There is an EU framework, called the EU Taxonomy, which is a classification for green investments. It works in the same way as the Linnaeus’ system for plants and animals. There are several thresholds ​​and requirements that must be met, based on which sector you are active in. The sectors that are in the biggest need of adjustment are pinpointed and the demands on them are increased. When it comes to green funds, for example, they have a large predominance of companies with a low climate impact. But that doesn’t mean that you – as an investor – have an actual impact on sustainability related issues. If you want to really make your money count, it might be better to invest in where the investment will make a bigger difference. This is what the legislators and legislation want to help explain. Because it should be easy to understand where your investment can make the biggest and greenest difference.

Quarterly capitalism is often spoken of as a contrast to more long-term investments. What kind of implications does a transition to a greener investment strategy have, both short- and long-term?

The pandemic and the war in Ukraine may have had the implication that investors are now starting to look at other risks and adapt a more long-term perspective. Being more risk-averse. The EU taxonomy is mostly focused on infrastructure companies – they are essential for society to function, but they also need to change. And you must keep an eye on that when you invest – you can’t just simply throw money at tech start-ups and hope they’ll solve everything. Investments in companies that are considered a bit less exciting are also needed. The need for houses and roads won’t stop, but we need to find less environmentally harmful ways to get there.