Henri Kulvik, Sifter Fund

Responsible investment – the net impact creates a new perspective and indicators

According to Morningstar, Sifter Fund is rated 5/5 in terms of responsibility. This score means that we are rated among the world’s most responsible funds. We wanted to take a closer look at this important theme. We started to explore this with Upright Project and we were surprised.

Upright Project is a Finnish startup company that has developed a model to measure the global net impacts of companies by exploring cause-and-effect and using artificial intelligence.

Open Upright Project -report PDF

Net impact describes the impact of the company’s products and services on the environment, health, knowledge and society.

In addition to assessing how responsible the operations of a company are, the impacts created by the products and services are also considered. For example, it is easy to produce sugar with minimum effect on the environment, but the diseases caused by sugar, such as obesity, are ignored.

The power of Upright Project is based on a neural network, in other words, a computer-based method to filter essential information from a large amount of data.

A database of 80 million scientific articles and a scoring system developed on the basis of it are used as the basis for the study. In practice, companies are scored with positive and negative points in accordance with the impacts of their products and services.

What does the net impact report look like? The comparison of the net impacts of Sifter Fund Global, S&P Global 100 Index, and Aberdeen World Equity Fund as an example.

Responsible investment raises strong feelings

Over the past few years, we have paid attention to the growing number of investors asking us about responsibility. Responsibility is, without a doubt, a growing and significant trend. Why?

Because money is power.

Investors are interested in the side effects of their investments in addition to the yields. Many investors want to invest according to their values. Responsibility raises strong feelings among investors.

The importance of independent knowledge is emphasized when the investor wants to perceive responsibility as part of a broader context. What is true? What is greenwashing?

We participated in the Upright Project study since we wanted to explore Sifter Fund’s responsibility from a new perspective.

Sifter Fund’s net impact

In the Upright report, Sifter Fund was compared, for example, with Nasdaq Helsinki. The results of the study show that Sifter Fund stands out positively especially in the health category. Nasdaq Helsinki also has a more negative impact on the environment. This is due to the impacts, for example, of Neste Oil, Fortum, and Finnair.

Sifter Fund’s net score of 1.87 is clearly higher than Nasdaq Helsinki’s 0.52. Sifter Fund has a positive impact on the health, society, and knowledge categories.

The results of the comparison were somewhat surprising. Did you expect that the average net impact of companies listed on Nasdaq Helsinki is considerably more negative than that of an international equity fund?

All of Sifter Fund’s quality companies were assessed in the study. Even though our fund performed rather positively, we also found companies that have a strong negative impact on the overall situation. Such companies are especially Old Dominion Freight Line and Canadian National Railway, which are specialized in logistics. On the other hand, the traditional ESG indicators provide a much better view of the companies.

Would you like to learn more about the study? Download the study report (a PDF file with 20 pages). The report includes more detailed information about the study as well as company-specific net impact profiles of Sifter Fund’s companies: Microsoft, Johnson & Johnson, and Cisco Systems.

What did we learn?

During the project, we noticed that the image is not always accurate. For example, many renewable energy investments may turn out to be negative in terms of the net impact on the environment.

It is important to notice that all companies have a negative impact on the environment. For example, First Solar, which produces solar panels, has a negative impact on the environment, but the overall result is positive. This results from the company’s impacts on infrastructure.

A company may operate perfectly on the company level when measured with the ESG indicators, but the use of its products causes damage to the planet and humankind.

The Upright study focusing on the net impacts creates a new perspective on responsibility.

When operating with responsible investments, we have encountered the following problems:

  • Unclear criteria and indicators – It depends largely on the companies and funds how responsibility is measured and reported.
  • Top of the class in a special school – A company may receive a great responsibility score even though it is the top operator in a non-responsible industry.
  • Paid certificates – This important issue can be ruined by requesting consultants to fix the principles, reports, and certificates.
  • Top performance with a negative impact – The company may operate perfectly when measured with the ESG indicators, but the use of its products, nevertheless, causes damage to the planet and humankind.

We strongly believe that Upright work will help us specify Sifter Fund’s responsibility policies.

Read also: Henri Kulvik, Chairperson of Sifter’s Board, is a sustainability pioneer.

Disclaimer. The contents of this page do not constitute investment advice or purchase recommendations for stocks. This page describes our opinions on the companies we have invested in or whose shares we have sold. The past performance of the fund is not a guarantee of future results.
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