How a company deals with sustainability is a crucial component when we analyse which companies have the best conditions for creating value in the future. Sustainability is about how companies take into account the environment and social conditions in their operations, as well as how they are managed, organized and administered. Sustainability is therefore a natural and important part of our investment process and philosophy when it comes to finding the best investments for our funds.
We take into account negative effects a company may have through our company analyzes. It’s about what companies do and how they do it. The analyzes lead us to exclude certain companies and sectors that are involved in unfortunate products, such as controversial weapons, or in breaches of international norms. This includes companies with a large negative climate and environmental impact, companies that violate human rights or companies where corruption and / or economic crime have been proven.
We use active ownership to influence companies for improvement. The first step is to measure the current situation. That is why we measure, among other things, the carbon footprint in our funds. In this way, we put the companies’ carbon emissions on the agenda. We also review the portfolios regularly to uncover any breaches of our expectations and requirements. In the event of a breach, we as active owners will try to influence the company to make improvements.
Our framework for sustainable investments, consists of three sections and is a natural part of the ODIN model:
- Integration means that sustainability is a natural part of all analyses, discussions and decisions related to the choice of investments and the management of the funds.
- Active ownership means that through dialogue and the use of our voting rights at general meetings, we influence the companies to become better at sustainability
- Exclusions and observation means that we exclude certain sectors and companies due to its actions and/or the products and services the companies offer
Integration of sustainability into analysis work
Integration is about us conducting sustainability analyses of the companies. When we consider investing in a company, we carry out a comprehensive sustainability assessment of all aspects of the company’s operations and culture. In other words, we consider the risks and opportunities for each company associated with sustainability, whether sustainability is prioritized by the board and management and how well equipped they are to handle issues related to this.
In addition, we regularly review the companies we are invested with regarding sustainability. A good assessment depends on sufficient and correct information. We therefore use both publicly available information such as annual reports and the like, but also information from meetings with company management representatives and from analysts.
We also use external analysis agencies that provide us with objective assessments of each company. We currently work with Sustainalytics, a well-known company that gives us access to a comprehensive database and sustainability analysts. They also help us monitor the extent to which companies are involved in undesirable products or business activities.
Active ownership – dialogue and commitment
Active ownership means that we use our voice as a shareholder, both by voting at general meetings and in dialogue with the companies we invest in. We also participate in nomination committees, where we contribute to getting the right expertise on the companies’ boards. In this way we want to create awareness about sustainability and influence companies to become better.
This make the companies even better equipped to cope with the challenges they may face, and this also benefits shareholders. Our goal is to vote at all general meetings of the companies we are invested in. We do this through services from ISS Proxy Voting Service, where we receive suggestions for voting based on sustainability considerations.
Our dialogue with the companies is usually related to specific events, reporting or topics that we want to focus on. If an incident occurs in a company, our first act is to enter into dialogue. But if we do not see any ability or willingness to change, we sell the shares in the company.
Since we have concentrated portfolios, i.e. relatively few companies in each fund, we are often major shareholders in the companies we are invested in and our voice is therefore able to make a difference. In cases where we have smaller ownership interests, we work with other owners to achieve our goals.
Exclusion and observation
Exclusion and observation are the means we use if something arises in the companies that may be in violation of our sustainability guidelines. As an active fund manager, our approach is company-oriented.
This means that all companies are thoroughly analyzed and selected after a comprehensive and systematic process. We therefore do not have as great a need for long lists of companies in which we do not want to invest as other fund managers.
We set the bar high
When a company is excluded or put under observation, this takes place after a comprehensive assessment of the company’s risk profile and future prospects, where important sustainability criteria come into play.
At the same time, there are certain companies and sectors that we will not even consider investing in because the products they are involved in and/or how they operate violate our requirements. Which companies are to be excluded is made on the basis of separate criteria, which you will find below, as well as the requirements determined by the Government Pension Fund Global.
For example, none of our funds invest in companies that have:
- income related to controversial weapons, such as nuclear weapons
- five per cent or more of revenue related to the production of tobacco
- five per cent or more of revenue related to the extraction of oil sands
- five per cent or more of revenue related to thermal coal extraction or which bases on a significant part of its operations on thermal coal
- five per cent or more of revenue related to pornography
Companies suspected of serious and systematic violations of generally accepted norms are also excluded. In addition, some of our funds also excludes for example sectors such as alcohol and commercial gambling. We expect the companies we invest in to behave properly and in accordance with the principles of the UN Global Compact, which is about contributing to sustainable corporate practice.
Sustainability central to the ODIN model
We believe companies that understand the importance of sustainability will have a competitive advantage in the years to come. We see a lack of willingness and/or ability in management to take into account environmental and social conditions, such as labour, as a symptom of poor corporate governance. We are therefore concerned with ensuring that the companies we invest in have good management and corporate governance. This is because this will contribute to better long-term returns for our customers.