Actively engaging with the managers and boards of directors of investee companies on business strategy and execution, including specific sustainability issues and policies. Active ownership is generally regarded as one of the most effective mechanisms to reduce risks, maximise returns and have a positive impact on society and the environment – for passive and active investors. Recent academic research shows the value of active ownership: when done well, engagement and proxy voting activities bring higher financial returns, enhanced communication, improved knowledge, stronger internal relationships and more integrated strategies.
An approach where leading or best-performing investments within a universe, category, or class are selected or weighted based on ESG criteria. This approach involves the selection or weighting of the best performing or most improved companies or assets as identified by ESG analysis within a defined investment universe. This approach includes Best-in-Class, best-in-universe, and best-effort.
Divestment, the opposite of investment, is the process of selling an asset or share in a company. Divestment can be part of an ESG focus: when investments are reduced and firms withdraw from a particular geographic region, industry or company due to norms violations.
Engagement & Voting
Engagement activities and active ownership through voting of shares and engagement with companies on ESG matters. This is a long-term process, seeking to influence behaviour or increase disclosure. Engagement is an activity (such as face to face meeting, call, field visit, letters) that investors and other stakeholders of companies undertake in order to obtain information and influence behaviour. It is the crucial link between owners and managers that leads to better investment management, improved company behaviour and enhanced stakeholder relations. Engagement can be done alone or via a collective engagement platform (such as UNPRI).
ESG is short for Environmental, Social and Governance.
Environmental issues concern any aspect of a company’s activity that affects the environment in a positive or negative manner. Examples include greenhouse gas emissions, renewable energy, energy efficiency, resource depletion, chemical pollution, waste management, water management, impact on biodiversity, etc.
Social issues vary from community-related aspects, such as the improvement of health and education, to workplace-related issues, including the adherence to human rights, non-discrimination and stakeholder engagement. Examples include labour standards (along the supply chain, child labour, forced labour), relations with local communities, talent management, controversial business practices (weapons, conflict zones), health standards, freedom of association, etc.
Governance issues concern the quality of a company’s management, culture, risk profile and other characteristics. This includes the board accountability and their dedication towards, and strategic management of, social and environmental performance. Furthermore, it emphasises principles, such as transparent reporting and the realisation of management tasks in a manner that is essentially free of abuse and corruption. Examples include corporate governance issues (executive remuneration, shareholder rights, board structure), bribery, corruption, stakeholder dialogue, lobbying activities, etc).
The explicit inclusion by asset managers of ESG risks and opportunities into traditional financial analysis and investment decisions based on a systematic process and appropriate research sources. This type covers explicit consideration of ESG factors alongside financial factors in the mainstream analysis of investments. The integration process focuses on the potential impact of ESG issues on company financials (positive and negative), which in turn may affect the investment decision.
Fiduciary duties (or equivalent obligations) exist to ensure that those who manage other people’s money act in the interests of beneficiaries, rather than serving their own interests. The most important of these duties are:
Loyalty: Fiduciaries should act in good faith in the interests of their beneficiaries, should impartially balance the conflicting interests of different beneficiaries, should avoid conflicts of interest and should not act for the benefit of themselves or a third party.
Prudence: Fiduciaries should act with due care, skill and diligence, investing as an ‘ordinary prudent person’ would do.
Materiality of ESG Factors
Materiality is the principle of defining the social and environmental topics that matter most to businesses and stakeholders. ESG Analysis typically considers any factor that can have a significant impact on a company’s core business value drivers – namely growth, profitability, capital efficiency, reputation and risk exposure – to be financially material. Thus, RI analysts typically start by determining which information is “material “for specific sectors. Materiality assessments can be used as a strategic business tool, with implications beyond corporate responsibility (CR) or sustainability reporting.
Negative (Exclusionary) Screening
An approach that excludes specific investments or classes of investment from the investible universe such as companies, sectors, or countries. This approach systematically excludes companies, sectors, or countries from the permissible investment universe if involved in certain activities based on specific criteria. Common criteria include weapons, pornography, tobacco and animal testing. Exclusions can be applied at individual fund or mandate level, but increasingly also at asset manager or asset owner level, across the entire product range of assets. This approach is also referred to as ethical- or values-based exclusions, as exclusion criteria are typically based on the choices made by asset managers or asset owners.
Nordea Voting Portal
NAM’s voting portal showcases our voting, both in the AGMs we physically attend and our proxy voting. The portal is updated continuously and contains our historical voting since the 2017 season. It is accessible by our clients. All the votes are logged in within 24 hours, and shown on a holding or aggregated level.
Screening of investments according to their compliance with international standards and norms. This approach involves the screening of investments based on international norms or combinations of norms covering ESG factors. International norms on ESG are those defined by international bodies such as the United Nations (UN).
Resource efficiency means using the Earth’s limited resources in a sustainable manner while minimising impacts on the environment. It allows us to create more with less and deliver greater value with less input.
We proactively engage through dialogue 1) when we see breaches of international norms/ incidents or 2) around specific material risks or opportunities at companies we invest in. See definition of materiality above.
Investment in themes or assets linked to the development of sustainability. Thematic strategies focus on specific or multiple issues related to ESG. Sustainability themed investments inherently contribute to addressing social and/or environmental challenges such as climate change, eco-efficiency and health. Strategies are required to have an ESG analysis or screen of investments in order to be counted in this approach.
Sustainable finance refers to any form of financial service integrating environmental, social and governance (ESG) criteria into the business or investment decisions for the lasting benefit of both clients and society at large. Activities that fall under the heading of sustainable finance include but are not limited to the integration of ESG criteria in asset management, sustainable thematic investments, active ownership, impact investing, green bonds, lending with ESG risk assessment and development of the whole financial system in a more sustainable way.
Thematic and focus area engagement
Theme engagements are conducted with a specific focus on companies’ high exposure to certain themes or our focus areas—human rights, climate change, water, and corruption. These themes are defined by NAM’s RI team, and discussed / validated by NAM’s Responsible Investment Committee.
UN Global Compact
The United Nations Global Compact is the world’s largest corporate sustainability initiative, which works to mobilize companies to do business responsibly by aligning their strategies and operations with ten principles on human rights, labour rights, environmental protection, and anti-corruption. Nordea has been a member of UN Global Compact since 2004.
The UN identified and launched 17 Sustainable Development Goals (SDGs) in 2015 as a follow up to the Millennium Development Goals (2000-2015). They are high level aspirational targets running until 2030, whose aim is to end poverty, protect the planet and ensure prosperity for all. Each goal has specific targets behind it with achievement indicators to be met over the next 15 years. These are aimed at Governments, Corporations and Individuals. Governments alone cannot drive or fund the steps required to meet these goals; private money and motivation will also be needed to move towards the targets (the “funding gap”). The SDGs are important as a set of goals because they are objective, clearly defined, and widely recognised. Thus they provide a good frame of reference when discussing issues around sustainability and ESG. As a result, investors are increasingly using this to assess the companies they invest in. In principle, the SDGs are not connected. They were developed completely separately. The UN PRI are aimed at investors, while the SDGs are aimed at everyone. However the PRI has adopted the SDGs as a suitable framework to help signatories align their responsible investment practices with the broader sustainable objectives of society.