Back in 2008, Ylva Hannestad joined Nordea Asset Management to initiate and develop its work with responsible investments. Since then, she has worked with responsible investments and sustainable banking in expert and leadership roles. Her previous roles include Director of Responsible Investments, Head of Active Ownership and Senior Advisor Sustainable Finance. She has also served as a board member and has been part of various advisory boards of national and international sustainability organizations. Currently, she holds a board position on the Swedish National Advisory Board for Impact Investing.
Ylva Hannestad, Deputy Head of Group Sustainability at Nordea
Ylva, tell us a bit about your job! What is it that you do at Nordea?
I think I have one of the best jobs in the world! Every day, I work to drive positive change by contributing to Nordea becoming a more sustainable bank. To me, that is really what sustainability is all about: ensuring that we consistently improve and increase our positive impact on the societies in which we operate and for all our stakeholders.
Do you live sustainably yourself? If so, what are your best sustainability tips?
Yes, I think – or at least hope – I do. I try to teach my children about sustainability, the importance of recycling and taking care of nature. Sometimes we spend a Saturday morning picking up garbage in nearby nature. I try to make it as tangible and visual as possible for my kids. Everyone can recycle food packages, be mindful of water usage, choose products that are environmentally or socially certified, use electricity moderately and refrain from throwing plastic bottles, tins, or cans away in nature.
Which sustainability issues are closest to your heart?
Climate change would be top of mind, since it does not cause isolated problems but a ripple effect throughout all systems on earth – natural and man-made alike. It harms biodiversity, causes water risk, droughts and hurricanes, for example. All these severe climate problems have devastating impacts on our societies. Heatwaves, resulting in droughts and water shortage, can cause famines and give rise to diseases. This contributes to serious social and economic problems for individuals, societies and entire nations and can take years to recover from. We live in a global community with trade routes interconnected globally, so what happens in one part of the world has an impact everywhere. We need to address all sustainability matters in order to achieve the UN’s Sustainable Development Goals (SDGs).
In what way has the financial industry and the way ESG (Environmental, Social & Governance) is talked about changed since you joined in 2008?
When I started working with sustainability, it was very much about reputational risk. We and our industry peers worked mainly with excluding companies that were non-sustainable or involved in certain sectors (such as tobacco or alcohol). However, around five years ago, something shifted. An understanding emerged that sustainability was not only the way forward from an ethical perspective, but also from a business point of view. This resulted in more and more funds with sustainable (ESG) focus being developed and launched. Sustainable companies have a better risk assessment and are generally better prepared for the challenges ahead. Now, we see that regulators are taking an interest in sustainability and particularly in how climate change impacts banks’ financial risks. It has and will continue to lead to an increased focus on risk management and data. Around the same time, our customers started calling for sustainable banking products.
What do you see as the main challenges for the financial sector in the transition to a more sustainable economy?
The financial system has inherently focused on short-term gains. But that focus, and way of operating, will not generate the desired financial results going forward. As a sector, we need to re-engineer the financial system, in order to create the right conditions for a sustainable and prosperous global economy. We need to change our business into a model that supports long-term value creation and benefits the environment and society. A very concrete challenge is that we need to act now, while not always having data that fully back up our decisions. We need to gamble a bit, and with that comes both risks and challenges. That’s one of the reasons our analysts are so important – so we can properly identify what data we need and which sources are the best.
Looking back, is there any specific time or event that was the wake-up call for the financial sector to become sustainable?
Yes, there are quite a few looking back over the years. The Principles for Responsible Investment (PRI) were launched in 2006 and were in some sense a starting point for setting a joint framework for how investors should work with the integration of ESG factors into investments and active ownership practices.
Another milestone came in 2015 with the signing of the Paris Climate Agreement and the launch of the UN SDGs – both setting clear ambitions and directions for what needed to be done to achieve a sustainable economy. By now, it is the norm for businesses to commit to achieving these. Over the last two years, I would also highlight the Principles for Responsible Banking (PRB), which provide the same framework for banks as PRI did in 2006
Lastly, I would point to the increased attention regulators are now giving to climate risks and their impact on financial stability.
We will never be ”done” when it comes to evolving into a sustainable bank. The bar will – and should – keep rising!
How long do you think it will take before we no longer need to talk about ESG, that it’s a natural part of banking and commerce?
I think it’s important to understand that sustainability is a journey, and, in that sense, we will never be ”done” when it comes to evolving into a sustainable bank. The bar will – and should – keep rising. However, I do think that sooner than we expect, customers will expect banks and other companies to be sustainable. Being sustainable will be the new corporate norm and nothing we should expect to receive standing ovations for. I think it’s good that companies are forced to make this transition through pressure from customers, stakeholders and regulators.
Do you think that banks are credible when it comes to promoting sustainability?
Today we are, but that has not always been the case. In all honesty, our industry has been somewhat slow when it comes to understanding and acting on our responsibility related to sustainability. Banks’ sustainability risks are mainly indirect and through our customers and their operations. As such, they have been challenging to manage. But the financial market now understands that it plays a key role in creating economic incentives that contribute to a sustainability shift and that we are a very important enabler of the green/sustainable transformation that needs to take place.
As a customer, how can I know which bank is walking the talk when rankings differ so much?
The ranking result varies because the methodology used for assessing a company’s sustainability work differs. We understand that it can be confusing, and I think the best thing a customer interested in sustainability can do is to check the information we make public on our website and also speak to our advisors about our products and services.
Do you think that stricter regulatory frameworks are what’s needed to drive change, or are voluntary global collaborations enough?
As I have mentioned before, data and methods are key challenges for the industry. It will require European solutions, as well as multi-year developments for individual banks. The support of the regulators in resolving the data and methodological challenges will be fundamental to the successful implementation of quantitative C&E-related risk assessment.
These days, everyone is talking about sustainability. Is there a risk of overload – that the flood of sustainability claims has the opposite effect, making customers confused or deaf to the arguments? In other words, is there a chance that sustainability loses credibility, leaving room for greenwashing?
Definitely. I don’t think that customers will lose interest in sustainability, but I think it can create confusion, and there is a risk of greenwashing. That’s why at Nordea, we are very focused on walking the talk. As an example, we don’t want to publish a policy or a sector guideline, just to have it up on our website. We want to ensure that we can comply with it and that it has been fully integrated into the organisation.
Looking back at your career at Nordea, what sustainability achievement are you most proud of?
It’s a difficult question as there are so many! But to name one, I would highlight our sustainability funds – which are award-winning and have over the last decade demonstrated a good financial return as well as a positive impact in society. But in all honesty, I think our proudest moment is yet to come. The beauty of working with sustainability is that despite the future sometimes appearing rather gloomy, there are so many talented people with businesses out there, developing solutions for a more sustainable future. It proves that necessity is indeed the mother of invention!