"The Swiss Stewardship Code is radical - and I mean that in a positive way"

Nordea AM Cristian Pappone

Cristian Pappone
Regional Head of Institutional and Wholesale Distribution, Switzerland & Austria bei Nordea Asset Management

Cristian Pappone has been Regional Head of Institutional and Wholesale Distribution, Switzerland & Austria at Nordea Asset Management since November 2023. Prior to that, he held senior positions at Vontobel Asset Management, Zürcher Kantonalbank, RobecoSAM and Credit Suisse for more than 20 years. He completed an Executive MBA at the University of Zurich and the Executive Programme "Managing international Asset Management" at the Swiss Finance Institute.

 

Mr Pappone, you recently became head of the Nordea Asset Management team for Switzerland and Austria: where are you currently focussing your efforts?

We are currently focussing on expanding the team. In recent months, we have been able to recruit very experienced team members with whom we want to further develop the Swiss business. This also includes the recently announced entry into the institutional business. This also means that I have to take a close look at our strategic direction and create the framework conditions so that the team can work together in the best possible way.

Where do you see the differences between the Swiss and Austrian markets?


Austria is perhaps one or two steps ahead of Switzerland in terms of sustainability. The Austrian market is also much smaller and highly fragmented. The difference in size is particularly noticeable in the institutional market: there are around 20 to 30 pension funds and pension schemes in Austria, while there are well over 1,200 players in Switzerland.

Nordea Asset Management practices active ownership in the area of sustainability: How large is the investment universe in question?


We are involved across all investments in various asset classes, which corresponds to a universe of more than 10,000 names. However, these are not all individual companies, as a company's debt instruments, for example, can be issued by several issuers. Last year, engagement processes were in place for 52 per cent of our equity holdings.

What additional resources are required to exercise active ownership?


Serious engagement is resource intensive. In addition to a well-staffed and experienced stewardship team and a good ESG or responsible investment organisation, access to data - preferably from multiple providers - is important. When it comes to voting, we have our own voting guidelines in place with our Provy voting provider and have a system that we use to filter out all environmental and social shareholder proposals. We then evaluate these manually. The Swiss Stewardship Code of 2023 recommends many of these measures and is very modern. It is even relatively radical - and I mean that in a positive way. Consideration of the carbon footprint, for example, is seen as part of the investor's fiduciary duty. Unlike the UK code, which in my view is the strictest in the world, the Swiss code does not provide for a review of the stewardship practices of institutions that claim to be in line with the code. In the UK, such assessments often result in institutions losing the right to call themselves signatories.

Does Nordea have a track record of making strategy or other adjustments based on engagement and voting?


Absolutely. There are some successful engagements that have been initiated because the companies in question were suspected of not fulfilling our requirements. If the engagement reveals serious problems or the company shows no intention of rectifying the problems, this can lead to a divestment.

You have been working in Swiss asset management for over 20 years. What changes have you noticed in the industry?


There have been a lot of changes during this time. For example, I consider the trend towards passive investing via ETFs and other forms of index funds and the general pressure on margins, particularly in the active area, to be particularly influential. I am also currently observing technological developments in the areas of digitalisation, artificial intelligence, crypto and blockchain with great interest. Furthermore, the topic of ESG in the broadest sense is gaining momentum - even if it has recently lost some of its popularity due to geopolitical challenges such as Russia's war of aggression against Ukraine. In my opinion, the asset management industry plays a central role in decarbonisation. However, more global standards and transparency are needed. On the other hand, I think too much regulation is counterproductive.

What will be the major drivers in the asset management industry in the coming years?


The various global tensions are likely to have a much greater impact on the markets in the future than we currently believe. For example, the deglobalisation triggered by the coronavirus pandemic could also take place in asset management in the medium to long term. In the future, those asset managers who produce funds or manage institutional solutions in their target markets alongside local sales teams are likely to prevail. In addition, there is increasing pressure on active asset managers. In future, they will have to demonstrate even better what added value they create compared to passive products. Last but not least, I am convinced that responsible investing is here to stay. Even if the ESG issue is currently viewed rather critically by many investors, it will not disappear from the agenda in the long term. This will benefit asset managers who are already specialising in sustainable investment solutions.