Stockmarket performance during the COVID-19 crisis has clarified that equities with higher environmental, social and governance (ESG) ratings are the “winners of tomorrow”, according to the head of Sweden’s largest pension fund, who described the revelation as a new driver for sustainable investing.

Speaking at this morning’s Sustainable Investment Forum Europe Digital Event, Magnus Billing, chief executive officer of Alecta, said: “I think what has become the fourth driver [behind ESG investing] is what is coming now when we see the effects of COVID-19.”

Admitting it could be too early to say whether performance so far in the crisis was evidence of a long-term effect, Billing said the data clearly showed that companies with high ESG scores were performing better than their competitors with lower rankings.

“So clearly there is a strong argument to say good performers in the ESG space are the winners of tomorrow,” he said.

“And I think that in my view there are strong arguments to say that that will continue for the long-term, but obviously that remains to be seen – but that’s the belief we have at Alecta,” Billing said.

The other three drivers behind ESG investing for Alecta cited by Billing were the clear message from the pension fund’s customers that their money should be invested in a sustainable manner; the advanced integration of ESG factors into the business models of the companies in which Alecta invested; and regulatory changes.

The pension fund CEO also said customers were now placing greater importance on the social and governance aspects of ESG than they had before.

“Climate has been an area that’s been very concrete and tangible and at the top of the minds of many of our customers for many years. And I think what’s changing right now is the social aspect, the S of ESG, is coming more at the forefront,” he said.

This shift came down to the pandemic, he said.

“We are seeing parts of society being extremely negatively affected by COVID-19 and probably will have scars for the foreseeable future,” Billing said, adding that in his view, this would translate into even more demand from the customer side to take a social-aspect investment approach.

Magnus Billing, CEO, Alecta

“There is a strong argument to say good performers in the ESG space are the winners of tomorrow”

Magnus Billing, Alecta’s CEO

“Then on the G side, the governance side, we are starting to interpret our customers in such a way that we should take more of a stakeholder view rather than a shareholder-for-profit view,” he said.

Billing said despite earlier misgivings, he now had high expectations for the European Commission’s Sustainability Taxonomy.

“I was initially, I must confess, a little bit sceptical about the whole process because it was extremely difficult and technical and challenging, but the work that the group has done on the taxonomy is nothing less than very impressive and I think it will have a fundamental impact across the investment chain on how it will operate,” he said.

Answering an audience question about greenwashing, Billing said the taxonomy could help investors avoid products and services that fell short.

“I think we need to be a little bit cautious about initiatives around green supporting requirements on the capital requirement side,” he said, adding that such initiatives would encourage greenwashing or provide impetus for it.

“But currently in the market space,  I’m not that concerned about it as the market stands right now,” he said.

The SEK963bn (€93bn) Swedish pension fund is a founding member of the UN-convened Net-Zero Asset Owner Alliance.

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