-
![]()
Case Nordea - Chinese Equity Fund
Nordea promotes its responsible investment approach and highlights sustainability features in its China fund - A fund that has invested in controversial Temu, for example.
-
![]()
Case Varma 2024
Varma announced a “record-breaking investment in a climate fund” in December 2024. The ETF in question appears familiar, however.
-
![]()
Case Nordea - Global Climate Engagement
Nordea takes an unconventional approach to climate investing. The strategy has potential to become the ultimate solution.
-
![]()
Case TCW Transform Systems ETF
Asset management company TCW’s Transform Systems ETF takes a new approach to sustainable investing with positive results.
Case Nordea - Chinese Equity Fund
What happened?
Kauppalehti: “Nordea has invested millions in Temu's holding company”
On February 5, 2025 it was reported in the Finnish newspaper Kauppalehti that “Nordea has invested millions in Temu's holding company”.
Nordea is the largest bank in the Nordics and it declares to operate according to a Responsible Investment Policy, which “describes the framework governing the approach of Nordea Asset Management (“NAM”) to responsible investments.” According to the policy, “Nordea Asset Management’s mission is to create returns with responsibility by being ESG-proactive... By ESG-proactive we mean
integrating environmental, social and governance factors into our investment processes, taking into account both sides of the “double materiality”
actively engaging with our investee companies to ensure that they meet our expectations of sound ESG performance and compliance with international norms
offering a wide range of ESG solutions across all asset classes
accepting the responsibility to act as an industry leader within ESG/sustainability”
Temu, on the other hand, is facing growing criticism related to responsibility problems across the world. The company is under investigation by the European Commission on "strong suspicions" of violations of the European regulation on digital services, better known as the DSA (Digital Services Act). Norway’s government is discussing a potential ban on Temu products after authorities found toxic compounds in products bought from Temu, including illegally high levels of the plastic softener phthalate, chlorinated paraffins, lead and cadmium. The Finnish Consumer Federation stated on February 3, 2025 that sub-par Chinese products flowing into European markets endanger “both consumer safety and the circular economy operating models if products containing hazardous substances end up in reuse or material circulation.”
Analysis.
Nordea has invested in Temu through its Nordea 1 SICAV - Chinese Equity Fund. According to Nordea “The Fund has specific sustainability features... The fund promotes environmental and/or social characteristics in accordance with Article 8 of the EU Regulation on the Disclosure of Sustainability Information in the Financial Services Sector (SFDR)... The fund does not invest in companies or issuers that engage in activities that are considered environmentally or socially harmful...”
As illustrated on the following graph, Temu’s parent company PDD Holdings is Nordea’s China fund’s fifth largest holding with 4.7% of the fund’s assets invested in the company.
Nordea’s China fund's top 15 portfolio weights as of Dec 31, 2024, percent
Source: Bloomberg
In Kauppalehti’s news report, Nordea responds by stating that it is aware of criticism related to Temu, but as an active owner, Nordea uses their influence to steer companies they invest in in a more responsible direction.
Let’s take a look at Nordea’s influencing power measured by ownership share in the portfolio companies on the following graph.
Rounding the ownership shares closest to two decimal places of a percentage point, Nordea’s share in PDD is 0.00%.
Nordea’s China fund's ownership share in top 15 portfolio companies as of Dec 31, 2024, percent
Source: Bloomberg
Evaluation.
Nordea advertises its universally sustainable approach to all investments it makes. The bank declares its China fund an SFDR 8 fund promoting environmental and/or social characteristics. Nordea states that the fund does not invest in companies or issuers that engage in activities that are considered environmentally or socially harmful.
Temu’s activities are clearly environmentally and socially harmful, and it is the fifth largest holding in Nordea’s fund. It remains unclear in which way Nordea is attempting to influence Temu to shift into a more responsible direction as Nordea has close to 0% ownership in the company. Hence, the surfaced Temu-gate only reflects Nordea’s greenwashing in its promotion of investment products and probably comes as a negative surprise to many fund investors.
Case Varma 2024
What happened?
Varma makes record-breaking investment in a climate fund in the US market
Varma Press Release December 13, 2024
"We wanted a cost-effective fund tailored to our climate goals and operating in the US market. The investment serves well the objectives of our investment strategy, which are related to responsible investment and geographical diversification of investments. This is a liquid instrument and gives us flexibility when investing our assets totaling approximately EUR 63 billion," says Timo Sallinen, Head of Listed Investments at Varma.
The fund, tailored for Varma, invests in global companies that meet certain environmental and climate criteria. The companies in the fund have a proven track record of reducing carbon dioxide emissions and environmental responsibility.
Invesco Launches the Invesco MSCI North America Climate ETF (KLMN) - KLMN breaks global record by launching with US$2.4 billion invested by Finnish pension insurer Varma
Invesco Press Release December 12, 2024
Invesco Ltd. (NYSE: IVZ), a leading global asset management firm, announced the launch of the Invesco MSCI Global North America Climate ETF (KLMN). KLMN began trading on the New York Stock Exchange with US$2.4 billion in assets from Finnish pension insurer, Varma, which breaks a worldwide record by surpassing the funding of any previous new ETF launch globally.
“We are excited to collaborate once again with MSCI and Varma on a newly developed index and ETF that will allow Varma to easily execute a large allocation that aligns precisely with their investment views,” says Brian Hartigan, Global Head of ETFs & Index Investments. “Invesco is in a rare position to service global, institutional clients who want to leverage the liquidity and efficiency of ETFs to target important allocations in their investment portfolios.”
US listed thematic ETFs currently make up over US$439 billion in assets under management (AUM) and the category continues to see growth both domestically and internationally. Themes like greenhouse gas and carbon emissions reductions that are targeted by KLMN’s index can be useful to institutional clients who are looking to express large positions through a flexible and cost-effective allocation.
Analysis.
Based on press releases, something very significant has just happened. Varma made a record-breaking $2.4 billion investment in a new fund, which invests in global companies that meet certain environmental carbon dioxide emissions and climate criteria.
So, which companies did Varma invest in? The following figure exhibits the weights of the nine largest investments in the MSCI USA 500 Index and MSCI North America Climate EFT fund in percentages on December 13, 2024.
Top 9 constituents weights as of Dec 13, 2024, percent
Source: MSCI
It is difficult to assess the extent of Varma's investment in contributing to the goal of reducing carbon emissions and environmental responsibility. In financial terms, investing in the MSCI Global North America Climate ETF fund is essentially equivalent to investing in the MSCI USA 500 Index. One might view this as mere marketing and/or whitewashing by both Varma (the pension fund) and Invesco (the service provider), lacking any tangible economic impact.
Evaluation.
Varma’s climate-goal tailored investment does little to none to actually help combat climate change as the ETF’s holdings appear very similar to any generic large-cap equity index. The press releases and celebration of record-breaking climate investment could be categorized as greenwashing at its best.
Case Nordea - Global Climate Engagement
What happened?
Nordea Asset Management launches new climate strategy designed to curb real CO2 emissions
Nordea Press Release April 26, 2022
Nordea Asset Management (NAM) – a global leader in sustainable and responsible investments – is extending its suite of climate-focused solutions with the launch of Nordea 1- Global Climate Engagement Fund… The fund will leverage the experience, investment approach and risk management framework of NAM’s Global Climate and Environment Strategy, but instead of focusing on leaders in climate solutions, it targets companies in the earlier stages of transitioning towards sustainable business models. By pushing these companies to catch up to climate leaders, this approach unlocks under-appreciated value and contributes to the reduction of real-world emissions.
“Over the past few years we have witnessed a meaningful flight of capital out of areas of the market deemed ‘not green enough’ and potentially at risk in the transition to a net zero emissions world. Yet we believe many businesses that are carbon intensive today will still be relevant in the future green economy — or even critical to enabling the energy transition. Our goal is to generate alpha by de-risking the fundamentals of these companies through engagement on decarbonisation targets, strategy and capital commitments.” -Alexandra Christiansen, Portfolio Manager of Nordea 1 – Global Climate Engagement Fund
Analysis.
Similar to Case TCW Transform Systems ETF, Nordea 1- Global Climate Engagement Fund does not follow suit with most ESG funds like Case Varma 2024 investing closely to generic indices but excluding oil. Instead, the fund states that “high-emitting companies play a crucial role in enabling the green transition and decarbonisation… The Nordea 1 – Global Climate Engagement Fund aims to unlock their underappreciated value through engagement on environmental issues.”
The following figure exhibits the weights of the 15 largest investments in the fund as of December 30, 2024. The largest portfolio holdings consist of construction materials, waste management services, transportation & logistics, and energy companies, for example.
Nordea 1- Climate Engagement fund's top 15 portfolio weights as of Dec 30, 2024, percent
Source: Bloomberg
The portfolio companies represent some of the highest-emitting industries. An SFDR 8 (“light green”) fund, Nordea’s Climate Engagement Fund follows a path made by Nordea 1 – Global Climate and Environment Fund, a fund launched back in 2008 that has become Europe’s largest SFDR 9 vehicle according to Nordea. The Global Climate and Environment Fund is managed by the same investment team as the Climate Engagement Fund, and also invests in companies characterized by high emissions and transition goals.
The Global Climate and Environment Fund has developed into Europe’s largest SFDR 9 vehicle and has obtained a Morningstar sustainability rating of 4/5. The newer Nordea Climate Engagement Fund is managed by the same team and has a similar strategy, but is only classified as SFDR 8 and has a Morningstar sustainability rating of 1/5.
Evaluation.
Nordea 1- Global Climate Engagement Fund is a fresh look at sustainable investments and a step into the right direction away from greenwashing and towards concrete action and impact. However, like in Case TCW Transform Systems ETF, Nordea’s fund only owns fractions of a percentage point in the target companies’ outstanding shares (with the exception of 1.25% ownership in Liberty Broadband Corp), leading to negligible power to drive change in its target companies. This opens to question the strategy’s effectiveness and could only lead to investing in brown polluting companies without significant change. Nordea states that investing in high-emitting companies with underappreciated value generates alpha. This highlights the opportunistic nature of the fund as opposed to legitimately seeking to solve the global climate problem. However, if more industry actors would follow Nordea’s example, the ultimate solution to sustainable investing could be formed.
Case TCW Transform Systems ETF
What happened?
Investment firm Engine No.1 Launches Transform Climate ETF (NETZ) in 2022 - Acquired by TCW in 2023 and renamed TCW Transform Systems ETF (NETZ)
Engine No. 1 Press Release February 3, 2022
NETZ is an actively managed fund that aims to invest in companies that will drive and benefit from the energy transition. The Fund is focused on holding companies that have a strategy to create value on their path to net zero across multiple industries, including transportation, energy, and agriculture.
“While most climate-focused funds avoid so-called ‘brown’ legacy companies, we believe there is no way to decarbonize the planet without these companies transforming, and there is no time to lose,” said Chris James, Founder of Engine No. 1.
“As active owners, our goal is to drive transformation at the companies that need it most, including some of the world’s most polluting companies,” said Yasmin Dahya Bilger, Head of ETFs at Engine No. 1. “As investors, we can’t just invest in young tech companies that aim to tackle climate change over a longer time horizon, we need to own and engage with the companies whose transformation will drive change now at scale.
Analysis.
According to the press release, Engine No. 1’s approach to the ESG fund phenomenon appeared to differ from the mainstream as it did not intend to exclude polluting brown companies from its climate-action fund. On the other hand, the NETZ ETF was set to invest in companies that most needed investment to enable transformation and make a real difference.
So did this actually happen, or did the fund just follow the trend and invest in the same usual target companies? The following figure exhibits the weights of the 15 largest investments in the NETZ ETF as of January 7, 2025.
NETZ ETF top 15 portfolio weights as of Jan 7, 2025, percent
Source: Bloomberg
Unlike many so-called ESG or climate ETFs’ similarity to generic equity indices, NETZ has focused on 20-30 target companies comprising of many companies considered the opposite of green such Chevron and Exxon Mobil. Targets of the fund represent some of the most polluting industries in the world and also the most significant targets for a meaningful transformation towards a greener future.
As illustrated on the following graph, NETZ also outperformed the S&P 500 index in 2024.
NETZ has been able to beat the benchmark by investing according to a brown-to-green strategy where brown companies are not excluded, but included, in order to enable brown companies’ transformation towards a greener direction.
Sounds like the problem related to sustainable investments is solved? Probably, if more funds were following this example. However, the $340 million fund (as of January 7, 2025) holds very little power in its target companies’ decision making. For example in its largest portfolio holding Republic Services, one of the largest waste management businesses in the United States, TCW holds less than 0.0005% of all of the company’s outstanding shares, rendering TCW’s possible climate initiatives meaningless.
Total returns of NETZ and S&P 500 in 2024. (Indexed, 100=1 January 2024)
Source: Bloomberg
Evaluation.
TCW Transform Systems ETF (NETZ) represents a fresh look at sustainable investing that does not follow the mainstream’s ESG approach that has been proven problematic and of little significance in climate efforts. NETZ’s “brown-to-green” strategy directing investments to brown companies to enable their transformation to green appears to work at least in terms of returns as it outperformed the S&P 500 in 2024. However, NETZ’s negligible power to drive change in its target companies opens to question the strategy’s effectiveness and could only lead to investing in brown polluting companies without significant change.
TCW’s approach, therefore, appears more opportunistic in nature as opposed to actually driving any real change in the world. The two are not mutually exclusive, however, and if TCW’s approach were to become the new mainstream, the ultimate solution to sustainable investing could be formed.