There is "so much going on" around environmental, social and governance (ESG) investing but no one has actually sat down and said what defines ESG, why investors are doing it, and what the different strategies are, said Karin Bjork (pictured), associate director of client relations, Sustainalytics, to attendees at SRP's fourth Nordic Structured Products & Derivatives Conference in Stockholm on September 13, 2018.

Five years ago, when Bjork started at Sustainalytics, ESG was a niche, she said during her keynote address to the conference. "There were one or two big asset managers with a specialised fund they would call their ethical fund, or their ESG fund, and you had a few boutique asset managers, maybe not with the best performance, but their clients wanted to 'save the world'," said Bjork.

"Five years later ESG is this buzzword, and the fact that you have a structured products conference with so much focus on sustainable investing shows how far we have come."

The three big themes that determine why you do ESG and how you do it are the ethical perspective, risk, and impact, according to Bjork. "The first one, the ethical perspective, is where it is exclusionary, it is about tidying away what you don't want," said Bjork, adding that this is where you see a lot of value investors and asset owners.

The next perspective, risk, is where ESG "starts to get really interesting", according to Bjork. "Suddenly enough studies have shown that if you do ESG well, if you invest in companies who know how to manage this well, their might actually be a performance linked to it," said Bjork.

Risk also provides many opportunities for differentiating a product, a process, the themes highlighted, according to Bjork. "Is it a bottom up approach? Is it top down? Do you have special themes that you think are more performance than others within the sustainable investment field?," said Bjork.

Impact, the final of the three big themes, is something that really started coming to the forefront in the last year or two, especially after the UN sustainable development goals come out, according to Bjork.

"Climate change is real, despite what a certain tweeting man on the other side of the Atlantic says," Bjork said.

In the Nordics there is a very active debate about ESG, and it is across the whole financial value chain, according to Bjork. "In Sweden you have one body setting the stage for the ethical investment and that is the Swedish church, even though Swedes don't tend to be particularly religious," she said. "What the Swedish church has done has been a blue print. It has been really nice to have one party who says what you should and what you shouldn't do."

But, according to Bjork, over in Norway they don't care about the Swedish church. "And why would they? In Norway you have the council on ethics - a government body - setting the standard. There you have academics saying what they think is right and what is not right," said Bjork, adding that the government pension fund global has a lot of followers around the world who monitor closely what it does. "For them the central themes are no human rights violation, no tobacco, no controversial weapons and now they increasingly start focusing on climate change."

"Then you go down to Denmark where ethical screenings are also regulated by a corporate social responsibility (CSR) council," said Bjork. "I don't know if you know but the Danes are heavy smokers, most of them don't mind a bit of tobacco in their portfolios. In Sweden we screen out a lot of alcohol but try to tell a Dane he cannot invest in Carlsberg!

"So in Denmark there is also a different perspective, it is much more lenient. Of course, controversial weapons are not ok, norms violations are perhaps also not such a good idea but for the rest it is more of an open field."

The importance of setting up a good product is also about knowing who your end-user is, what is their motivation and what is the regional lens they are using, according to Bjork.

"Sustainalytics works directly with the structured product providers, to set up products that fit a special niche, whether it is a market, or a segment, and our job is to deliver the best possible data and also give some insight what we see in the market, what others are doing," said Bjork.

"It might be you are a strong believer in certain data points giving a performance but you might not want to take the full dataset of indicators."

In order to build the right product you have to understand the motivation and insure that it is the right dataset to back it up, according to Bjork. "Because the bar keeps changing every single year or here in Sweden every few months," she said.