War in Ukraine: Decarbonisation driver or decelerator?

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Over the last few years decarbonisation has been a hot topic, with COP26 cementing this as top of mind for governments, policy makers, financiers and the broader public. The move to decarbonise the global economy and achieve net zero is crucial to limiting further global temperature rises. According to Climate Action Tracker, under current policies we are currently on track to reach 2.7C above industrial levels by the end of this century, which could lead to disastrous consequences for the planet. This temperature trajectory should be viewed in the context of our current climate which has already reached 1.1C above pre-industrial levels, and even in this scenario we have seen a rapid increase in the frequency of extreme climate events including floods, forest fires and droughts.

In the context of recent events…

In light of the recent troubling events surrounding the Russia-Ukraine conflict, one might be forgiven for thinking that decarbonisation is no longer a top priority. The conflict has revealed a number of uncomfortable truths including Europe’s overreliance on Russian fossil fuels. It has also triggered broader economic impacts, pushing up global commodity prices and highlighting the fragility of the global food supply chain. Faced with this type of volatile and uncertain environment, it is natural to revert to ‘defense mode’, governments seek to mitigate some of the worst impacts on their economy and population; and companies look to protect their bottom lines to ensure they are able to weather this particular storm.

We’ve recently seen Western governments scrambling to secure alternative energy sources, many of which are unfortunately still fossil fuel based, with countries turning to coal or liquified natural gas imports. Meanwhile the climate crisis still looms large and it remains one of the biggest existential threats facing humanity, so it is important that decarbonisation does not get deprioritised and that our journey to net zero remains on track in order to limit the global temperature increase to 1.5C. UN Secretary General Antonio Guterres recently spoke out about this, condemning even short term reliance on fossil fuels as ‘madness’ on the basis that our addiction to fossil fuels leads to ‘mutually assured destruction’.1 Moreover, rapidly rising energy prices leading to higher energy bills is driving a renewed focus on companies being more energy efficient in carrying out their economic activities. Consuming less energy is not only good for business, helping to protect companies’ bottom lines during periods of higher energy prices; but this also improves a company’s decarbonisation profile. In this scenario, doing well from a decarbonisation perspective goes hand in hand with economic profitability and remaining competitive relative to more carbon heavy peers.

Given the temperature trajectory we are currently on and with emissions predicted to rise by 14% this year, the climate crisis and the importance of decarbonising the economy is not something we can afford to look away from or ‘park for later’. As climate scientists have incessantly warned, if we fail to limit global temperature increases in line with the Paris Agreement (1.5C) we will hit dangerous temperature tipping points which will inevitably lead us in the direction of climate catastrophe. It is tempting to take comfort from the fact that that a lot was achieved at COP26, and whilst some crucial pledges were indeed agreed there, it is far from job done. The lion’s share of the work that is needed to move the needle on carbon emissions lies ahead of us, and will require significant investment and an unwavering focus and commitment from key economic and political players.

What is net zero?

In essence, “Net Zero” refers to a state where the greenhouse gases that are released into the atmosphere are balanced out by the amount that is removed from the atmosphere. Achieving a state of net zero will require a drastic reduction in man-made GHG emissions, and the netting-off of remaining hard-to-abate residual emissions.

For companies, this would mean an almost completely decarbonised value chain, where their operations, products and services, would not create more GHG emissions than the amount they remove, either by producing solutions that absorb emissions from the atmosphere, or by offsetting their emissions in other ways. Given that carbon (CO2) accounts for most of global GHG emissions, decarbonising economic activities is key to achieving net zero, particularly within the G20 who are currently responsible for roughly 80% of global emissions.2

Source: Climate Action Tracker 1) Source: BBC News 2) Source: EPA

Why should we care?

Achieving net zero would limit global temperature rises, and avoid triggering catastrophic consequences for our climate and planet as a whole. Global warming not only effects our climate, but also has wide reaching impacts for the environment, biodiversity and society at large. Research has shown that the impacts of climate change will disproportionately effect more vulnerable and poorer communities, particularly those in emerging markets who are generally less able to protect themselves against extreme climate events, and less well equipped to recover in the aftermath.

Climate change inevitably also poses a serious threat to the global economy, creating significant risks for governments, businesses and households, exacerbated further by the uncertainty around how various climate scenarios could play out. It is no exaggeration to say that climate change is one of the most critical threats faced by our world, and according to the recent report by the IPCC we are nowhere near where we need to be in limiting global temperature rises to safe levels. This underlines the fact that urgent action is needed.

Where do asset managers come in?

As a result of their role in capital markets, asset managers have a key part to play in the journey to net zero. Asset managers are constantly evaluating companies when deciding what to invest in, and as an equity shareholder they may also have the ability to influence company level decisions by way of voting and engagement initiatives. The importance of their role in decarbonisation has been recognized by an increasing number of asset managers in recent years, and several successful industry initiatives have been launched helping to bring these actors together to align their commitments and setting frameworks for achieving them.

…the impacts of climate change will disproportionately effect more vulnerable and poorer communities…

The Net Zero Asset Managers Initiative (NZAM), for which Nordea Asset Management (NAM) was a founding signatory, was launched in December 2020 and now boasts over 200 signatories and covers approximately $57 trillion of AUM. Being an NZAM signatory means that an asset manager is committing to three key things:

  • Setting decarbonisation goals consistent with net zero emissions by 2050 across all AUM
  • Setting interim (2025-2030) targets for AUM to be managed in line with net zero emissions by 2050 or sooner; and
  • Reviewing interim targets at least every 5 years, until 100% of AUM is included.

The proportion of an asset manager’s AUM subject to 1.5C aligned reduction targets, is what is considered to be managed in line with net zero.

Explainer note: What does actually it mean for AUM to be managed in line with net zero?

Every portfolio will have its own carbon footprint, which is essentially the aggregated carbon emissions of all the companies which the portfolio holds positions in. For that portfolio to be managed in line with net zero, a target trajectory needs to be set to ensure that the carbon footprint can be gradually reduced over time to ensure it will meet its medium to long term goals. In order to set an appropriate net zero trajectory, the asset manager needs comprehensive data in order to analyse how each holding contributes to the overall carbon footprint of a particular fund or portfolio. This will lead the manager to analyse company level carbon emissions, assess who the biggest emitters are and whether they are likely to be able to reduce their emissions over time. Based on this information they will optimize the portfolio accordingly and may engage with some issuers on their decarbonisation plans where feasible.

At NAM, we have committed to the following targets:

Now to break some of these targets down and assess what they mean for the funds which NAM manages:

The goal of increasing investments in climate solutions will largely be achieved through our thematic equity funds, which seek to invest in companies providing solutions to environmental or social issues in line with relevant investment themes. The 2030 goal of reducing Weighted Average Carbon Intensity by 50% across the assets we manage will be achieved in two ways:

  • Top down targets: Setting fund level carbon reduction targets for 2030. So far 58% of NAMs listed equity AUM is subject to a strategy-specific carbon footprint target for 2030, which includes all of the ESG Stars Equity Funds. The precise target value for any given investment strategy will vary depending on the investment universe and composition of the strategy.
  • Bottom-up targets: Drilling down to company level, NAM has set a 2025 target to increase 1.5°C alignment among the top-200 contributors to NAM’s aggregated emissions across listed equity AUM. These issuers currently account for approximately 90% of NAM’s financed emissions in the listed equity space. We are aiming to improve net zero alignment by engaging with these top-200 emitting companies on their net zero transition plans. The companies will initially be assessed and categorized according to various KPIs including their decarbonistion ambitions, targets, disclosures, strategies, and capex alignment. These KPIs will be monitored over time as we aim to improve the levels of net zero alignment within these companies by way of engagement.

Prioritising real world emission reductions

In line with Nordea’s legacy of authentically seeking to achieve sustainable outcomes with our investment solutions, the aforementioned strategy to achieving Nordea’s carbon reduction commitments sets out to prioritise real world emission reductions. What do we mean by that? Essentially there are a number of ways in which a lower portfolio carbon footprint can be achieved; the easiest way would be to divest from the highest emitting sectors such as Industrials, into sectors which appear to be less carbon intensive such as Technology. We do not advocate this as an effective approach to decarbonising a portfolio however, as it achieves nothing in terms of reducing real world emissions. Our top down targets are dynamic and will re-adjust to different sector and regional allocations within the portfolio, ensuring that our investment teams are held to account and achieve real world emission reductions whilst meeting their fund level carbon reduction goals.

The bottom-up targets we have set also prioritise real world emission reductions, as we seek to move the top 200 emitters held across our equity funds in the right direction when it comes to decarbonisation, encouraging them to expedite their plans to transition to more renewable fuel sources. Being active owners is not new to us at Nordea, as we have a strong track record of engaging with companies on specific ESG topics and driving meaningful change by voting at shareholder meetings.

Data as of 31.01.2022. Sources: Nordea Investment Funds S.A. and MSCI. ©2022 MSCI ESG Research LLC.* Reproduced by permission. 1) Data based on the Weighted Average Carbon Intensity (tCO2e/USD million of sales). Source: Data sourced from MSCI Inc. for equities and ISS Ethix for fixed Income. 2) MSCI Emerging Markets NR Index. 3) MSCI All Country Asia Ex. Japan – NR Index. 4) MSCI Nordic 10/40 Index NR. 5) Russell 3000 Index – NR Index. 6) MSCI All Country World – NR Index. 7) MSCI Europe NR Index. 8) ICE BofA European Currency High Yield Constrained Index – Total Return 100% Hedged to EUR. 9) ICE BofA Euro Corporate Index. 10) Bloomberg Barclays Capital US Credit Index. 11) ICE BofA US High Yield Index.12) JP Morgan Emerging Markets Bond Index Global Diversified. 13) JP Morgan GBI Emerging Market Global Diversified. *Low coverage rate of 60.46%. For the display of the Weighted Average Carbon Intensity Nordea requires a minimum coverage rate of 75%. The displayed value of the Nordea 1 – European High Yield Stars Bond Fund is based on a coverage rate of 60.46%.

ESG Stars Equity Funds Decarbonisation building blocks

The ESG Stars Equity Funds are NAMs flagship benchmark constrained equity funds, spanning several regional flavors. As detailed below, each of these funds has its own 2030 target for reducing its carbon footprint. As a result, these funds can act as essential building blocks for asset owners looking to achieve their own 2030 and 2050 portfolio decarbonisation targets. An allocation to one or more of our ESG Stars Equity Funds in a portfolio will proportionately contribute to the net zero alignment of that portfolio.


Not only are the ESG Stars Equity Funds managed in line with net zero with respect to their medium & long term carbon targets, allocating to one or more of these funds can also have a decarbonsing effect in the short term. When analysing the current carbon credentials of the ESG Stars Equity Funds relative to their respective benchmarks, NAM’s flagship equity funds account for a much lower Weighted Average Carbon Intensity (WACI) as illustrated below. This means that allocating part of a broader equity portfolio to one or more of the ESG Stars Equity Funds, could help achieve a lower WACI for the overall portfolio. When it comes to decarbonisation there is no need to sacrifice instant gratification to achieve your long term goals, investing in our ESG Stars Equity Funds allows you to do both.


At NAM we are proud to have allocated significant resources to our decarbonisation efforts so far. We believe the firm level pledges we have made and the fund level targets we have set, are ambitious yet achievable and we look forward to engaging with more underlying companies, supporting and encouraging them on their journey to net zero and achieving real world emission reductions. At fund level we are well positioned in our ability to provide the right tools and building blocks in order to help asset owners decarbonise their portfolios, which we believe will be of critical importance to decarbonising the broader economy and achieving crucial climate goals. ‘Every fraction of a degree matters. Every voice makes a difference. And every second counts.’ 3

3) UN Secretary-General’s remarks on the launch of the intergovernmental climate change report (IPCC). The UN Secretary-General Antonio Guterres (28 February 2022) https://www.unicef.org/ vietnam/press-releases/un-secretary-generals-remarks-launch-intergovernmental-climate-change-report-ipcc

The sub-funds mentioned are part of Nordea 1, SICAV, an open-ended Luxembourg-based investment company (Société d’Investissement à Capital Variable), validly formed and existing in accordance with the laws of Luxembourg and with European Council Directive 2009/65/EC of 13 July 2009. This document is advertising material and does not disclose all relevant information concerning the presented sub-funds. Any investment decision in the sub-funds should be made on the basis of the current prospectus and the Key Investor Information Document (KIID), which are available, along with the current annual and semi-annual reports, electronically in English and in the local language of the market where the mentioned SICAV is authorised for distribution, without charge upon request from Nordea Investment Funds S.A., 562, rue de Neudorf, P.O. Box 782, L-2017 Luxembourg, from the local representatives or information agents, or from our distributors as well as on www.nordea.lu. Investments in derivative and foreign exchange transactions may be subject to significant fluctuations which may affect the value of an investment. Investments in Emerging Markets involve a higher element of risk. The value of shares can greatly fluctuate as a result of the sub-fund’s investment policy and cannot be ensured. Investments in equity and debt instruments issued by banks could bear the risk of being subject to the bail-in mechanism (meaning that equity and debt instruments could be written down in order to ensure that most unsecured creditors of an institution bear appropriate losses) as foreseen in EU Directive 2014/59/EU. For further details of investment risks associated with these sub-funds, please refer to the relevant Key Investor Information Document (KIID), available as described above. The investment promoted concerns the acquisition of units or shares in a sub-fund, not in any given underlying asset such as shares of a company, as these are only the underlying assets owned by the fund. Nordea Investment Funds S.A. has decided to bear the cost for research, i.e. such cost is covered by existing fee arrangements (Management-/Administration-Fee). Nordea Investment Funds S.A. only publishes product-related information and does not make any investment recommendations. A summary of investor rights is available in English through the following link: https://www.nordea.lu/documents/engagement-policy/EP_eng_INT.pdf/. Nordea Investment Funds S.A. may decide to terminate the arrangements made for the marketing of its sub-funds in any respective EU-country of distribution in accordance with Article 93a of Directive 2009/65/EC. Published by Nordea Investment Funds S.A., 562, rue de Neudorf, P.O. Box 782, L-2017 Luxembourg, which is authorized by the Commission de Surveillance du Secteur Financier in Luxembourg. Further information can be obtained from your financial advisor. He/she can advise you independently of Nordea Investment Funds S.A. Please note that all sub funds and share classes might not be available in your country of jurisdiction. Additional information for investors in Switzerland: The Swiss Representative and Paying Agent is BNP Paribas Securities Services, Paris, Succursale de Zurich, Selnaustrasse 16, 8002 Zurich, Switzerland. Additional information for investors in Germany: The Information Agent in Germany is Société Générale S.A. Frankfurt Branch, Neue Mainzer Straße 46-50, 60311 Frankfurt am Main, Germany. A hard copy of the above-mentioned fund documentation is also available here. Additional information for investors in Austria: The Facility Agent in Austria is Erste Bank der österreichischen Sparkassen AG, Am Belvedere 1, 1100 Vienna, Austria. Additional information for investors in the Netherlands: Nordea 1, SICAV is a Luxembourg Undertaking for Collective Investment in Transferable Securities (UCITS) registered in the Netherlands in the register kept by the AFM, and as such is allowed to offer its shares in the Netherlands. The AFM register can be consulted via www.afm.nl/register. Additional information for investors in France: With the authorisation of the AMF the shares of the sub-funds of Nordea 1, SICAV may be distributed in France. Centralising Correspondent in France is CACEIS Bank, located at 1-3, place Valhubert, 75206 Paris cedex 13, France. Investors are advised to conduct thorough research before making any investment decision. Additional information for investors in Belgium: The Financial Service Agent in Belgium is BNP Paribas Securities Services S.C.A., Brussels Branch, Rue de Loxum, 25, 1000-Brussels, Belgium. A hard copy of the above-mentioned fund documentation is available upon demand free of charge. Additional information for investors in Spain: Nordea 1, SICAV is duly registered in the CNMV official registry of foreign collective investment institutions (entry no. 340) as authorised to be marketed to the public in Spain. The Depositary of the SICAV’s assets is, J.P. Morgan Bank Luxembourg S.A. In Spain, any investment must be made through the authorised distributors and on the basis of the information contained in the mandatory documentation that must be received from the SICAV’s authorised distributor prior to any subscription. The Representative Agent is Allfunds Bank S.A.U., C/ de los Padres Dominicos, 7, 28050 Madrid, Spain. A complete list of the authorised distributors is available in the CNMV’s webpage (www.cnmv.es). Additional information for investors in Portugal: The Management Company of the SICAV, Nordea Investment Funds S.A., and the Depositary of the SICAV’s assets, J.P. Morgan Bank Luxembourg S.A., are validly formed and existing in accordance with the laws of Luxembourg and authorized by the Commission de Surveillance du Secteur Financier in Luxembourg. The Paying Agent in Portugal is BEST – Banco Electrónico de Serviço Total, S.A., duly incorporated under the laws of Portugal and registered with the CMVM as a financial intermediary. Additional information for investors in Italy: Fund documentation as listed above is also available in Italy from the distributors and on the website www.nordea.it. The updated list of distribution agents in Italy, grouped by homogenous category, is available from the distributors themselves or from the Paying Agents: State Street Bank International GmbH – Succursale Italia, Allfunds Bank S.A.U. – Succursale di Milano, Société Générale Securities Services S.p.A., Banca Sella Holding S.p.A, Banca Monte dei Paschi di Siena S.p.A., CACEIS Bank S.A.,Italian Branch and on the website www.nordea.it. Any requests for additional information should be sent to the distributors. Before investing, please read the prospectus and the KIID carefully. We recommend that you read the most recent annual financial statement in order to be better informed about the fund’s investment policy. The prospectus and KIID for the sub-funds have been published with Consob. For the risk profile of the mentioned sub-funds, please refer to the fund prospectus. Additional information for investors in the United Kingdom: The Facilities Agent is FE Fundinfo (UK) Limited., 3rd Floor, Hollywood House, Church Street East, Woking GU21 6HJ, United Kingdom. Additional information for investors in Ireland: The Facilities Agent is Maples Fund Services (Ireland) Limited, 32 Molesworth Street, D02 Y512 Dublin 2, Ireland. Additional information for investors in Sweden: The Paying Agent is Nordea Bank Abp, Swedish Branch, Smålandsgatan 17, 105 71 Stockholm, Sweden. Additional information for investors in Denmark: The Representative Agent is Nordea Danmark, Filial af Nordea Bank Abp, Finland, Grønjordsvej 10, Postbox 850 0900 CopenhagenC, Denmark. A hard copy of the abovementioned fund documentation is available here. Additional information for investors in Norway: The Nordea 1, SICAV is registered in Norway. Additional information for investors in Finland: The Nordea 1, SICAV is registered in Finland. Additional information for investors in Latvia: The Representative Agent is Luminor Bank AS, 62 Skanstes iela 12, 1013 Riga, Latvia. Additional information for investors in Estonia: The Representative Agent in Estonia is Luminor Bank AS, Liivalaia 45, 10145 Tallinn, Estonia. Additional information for investors in Lithuania: The Representative Agent in Lithuania is Luminor Bank AB, Konstitucijos pr. 21 A, 03601 Vilnius, Lithuania. Shareholders must evaluate possible investment risks and take this into consideration when making investment decisions. Additional information for investors in Brazil: This is a strictly privileged and confidential document for the purposes of a potential investment in foreign securities on a one-on-one basis with potential investors with a pre-existing relationship with Nordea Investment Funds S.A. This document contains information addressed only to a specific individual and is not intended for distribution to, or use by, any other person. This document (i) is provided for informational purposes only, (ii) should not be construed in any manner as any solicitation or offer to buy or sell any securities or any related financial instruments, (iii) should not be construed in any manner as a public offer of any securities or any related financial instruments, and (iv) and will be addressed to a potential investor with restrict access of information. 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Investors within Brazil should consult with their own counsel as to the applicability of these laws and regulations or any exemption there from. Source (unless otherwise stated): Nordea Investment Funds S.A. Unless otherwise stated, all views expressed are those of Nordea Investment Funds S.A. This document may not be reproduced or circulated without prior permission and must not be passed to private investors. This document contains information only intended for professional investors and financial advisers and is not intended for general publication. Reference to companies or other investments mentioned within this document should not be construed as a recommendation to the investor to buy or sell the same but is included for the purpose of illustration. The level of tax benefits and liabilities will depend on individual circumstances and may be subject to change in the future. ©2022 MSCI ESG Research LLC. Reproduced by permission. 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