Financial Effects of Nordic Sustainability Exclusions

This white paper analyzes the financial impact of standard Nordic sustainability exclusions on a global equity portfolio, specifically the MSCI AC World index, from 2019 to 2024. It discusses the ongoing debate regarding the effectiveness of these exclusions, which are commonly employed by asset managers and institutional investors as part of their responsible investment strategies. The paper examines how these exclusions, which typically involve companies associated with tar sands, thermal coal, controversial weapons, and tobacco, affect portfolio performance. Key findings indicate that the performance effects of exclusions can vary significantly year by year, influenced by major events such as the Covid-19 pandemic and geopolitical tensions. The analysis reveals that the exclusion-adjusted portfolio has outperformed the benchmark by over 4% during the study period, although this performance is subject to the inherent risks of a more concentrated investment universe. The paper concludes by highlighting the importance of sector composition and stock selection in determining the returns of the exclusion-adjusted portfolio compared to the benchmark.