The Difficult Decisions in Assessing Responsibility
Should you trust your own intuition, a specialist’s analysis, or mathematical modelling? Antti Savilaakso emphasizes the link between actions and words. Annu Nieminen has harnessed the power of human capital to research massive amounts of company data, with help from artificial intelligence.
During the last couple of years, both investing and responsibility have gained popularity, particularly among the younger generations. There are multiple factors involved in assessing a company’s responsibility and choosing where to invest.
“Trust your own intuition and common sense. Your personal opinion is just as good as anybody’s.”
This is how Antti Savilaakso, a responsible investment consultant based in London, encourages decision making. His 15 years of experience have shown that surprisingly little time is spent on making investment decisions. A lot of trust seems to be placed in the fund seller and the investment analyst.
“Trust is built on the idea that a fund marketed as responsible would be in line with the investor’s own thinking. However, there is a lot of subjectivity involved in making the analysis. Someone has made the analysis, and the investor trusts their opinion.”
Savilaakso sees as a drawback the tendency to state these opinions as objective scientific facts. He says that in some respect, analyses are like beauty pageants, where the public can choose their favourites.
When it comes to corporate responsibility, Savilaakso underlines the seamless relationship between actions and words. Stakeholders need to know the actual level of activity and be able to trust the information they receive.
“Corporate responsibility reports printed on fancy paper do not compensate for real actions. Communication should never be shaky.
Is the essence of business operations visible
News stories about waste management, a tobacco company’s philanthropy, and rainforest logging, often make headlines and shape the notion of corporate responsibility.” Yet Annu Nieminen encourages investors to adopt a wider viewpoint and to try to see the forest for the trees.
“What kind of business operations is the company actually involved in? What can the company achieve with its available resources? What is the company’s whole value creation and net impact? These are things we need to examine.”
Nieminen has not remained a mere spectator: instead, she has harnessed her company Upright to thoroughly investigate the matter. With the human capital of 15 passionate and highly educated young individuals combined with the power of artificial intelligence, Upright is tirelessly working towards the coveted goal.
“We aim at creating a global, useful, and attractive tool that would encourage and guide companies towards a net positive business model. At the same time, it would contribute to the companies’ financial competitiveness and image.
The public data of 43,000 companies from small start-ups to large global operators is already being processed in Upright’s systems.” According to Nieminen, artificial intelligence is simply a power tool – like a chainsaw – that chops up slow-going common-sense knowledge into a tangible form.
Upright has created a novel calculation method that examines aspects related to the environment, health, economy, society, and knowledge production: in other words, it provides a sectional view of the company’s indicators. During Upright’s three years of operation, operators have so far been persuaded.
“At the moment, we have 140 clients in the Nordic countries, including banks, investors, and publicly listed companies. We also aim at making the data available to companies’ other stakeholders, such as employees, consumers, and legislators, and hope to achieve this in about five years’ time,” Nieminen says.
Telling it like it is
Nieminen admits to having had doubts about whether companies would be willing to embrace Upright’s operating model. She initially estimated a 50–50 ratio in company response, but admits to having been pleasantly surprised. Companies are willing to tell it like it is.
“This is important for attaining change and developing the field. We need big decisions and robust indicators, and this trend supports us in producing our ambitious standard.”
Nieminen thinks responsibility is a hot-button issue, where apples and oranges easily get mixed as both big and small topics are discussed simultaneously. Savilaakso underlines that it is important to distinguish between what the company does and how it operates.
“A single product, like solar panels or wind power, can create an image of general acceptance and responsibility. How the company treats its employees, subcontractors, or the environment, is a different matter entirely.”
Savilaakso mentions a typical example of a responsible fund of 50–150 companies. One of the companies is placed in the limelight, so the question arises, what the other companies are about. Comparing companies is difficult, both within and across industries. Or is it?
“We must be able to draw comparisons across industries, and we aim to do just that with our calculation method,” Nieminen emphasises.
Creating an air of naturalness in investment talk
Savilaakso sees indifference as the opposite of responsibility. Legislation defines the minimums for concepts and operations that companies must adhere to. But legality is a cold comfort if actions are irresponsible.
The Declaration of Human Rights and banning child labour are examples of frameworks that regulate companies’ business operations. The United Nations’ Principles for Responsible Investment have been signed by over 3,000 companies, among them over 10 Finnish investors and over 30 Finnish asset managers. The European Union has also acted on the issue.
“The demand of funds has seen vigorous growth, and it is a good idea to control it with regulation. The European Union is a reliable and credible international operator that defines the right direction with its taxonomy.”
Savilaakso points out that with digitalization, the world has grown smaller. Knowledge is readily available and awareness of the global situation is increasing. Savilaakso thinks that the next generation will be the last to have the possibility to change things for the better.
According to Savilaakso, investing is linked to the shift in consumer behaviour. Funds are just like any other consumer products, like cars and washing machines.
“This considered, astonishingly little time is spent on buying them. ‘I don’t really know anything about these things’ is a comment heard way too often.”
In Sweden, it is socially more acceptable to talk about your finances and investments than it is in Finland. “Finnishness”, on the other hand, is good kindling for profitable investing.
“Finnish common sense works well in investing. We have the ability to see clearly what is right and what is wrong. That is why I would like to see more natural discussion in the Finnish investing environment.”
Savilaakso emphasises that Finland has its own, consistent value base. What it is in France, the United States, or somewhere else, varies greatly – and so do perceptions of responsible business practices.