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Supplements » ESG Report 2020

Sponsored feature: ESG solutions in the spotlight

Tobie_BrealeyFive reasons to consider Nordea Asset Management’s STARS funds for your ESG portfolio. By ESG specialist Tobie Brealey.

Many investors are taking first steps into responsible investment, as previously niche concerns have now become mainstream. Most asset managers now offer some form of ESG solution, but as the concept becomes more widespread, it’s increasingly important to be certain that an ESG fund meets its promises and your needs. Here are five reasons to consider NAM’s STARS funds.

1. A clear ESG concept
You should be able to understand easily what a manager’s ESG solution stands for.

NAM’s ESG-enhanced STARS funds sit at the forefront of our ESG offering. The STARS range currently consists of five equity funds and three fixed income funds which all share the same philosophy: the view that tomorrow’s winners will have sustainable business models and the ability to conduct their businesses responsibly in relation to their stakeholders – employees, suppliers, customers, investors and society at large.;

Articulating this philosophy, the STARS funds are built on the same three key objectives:

  • Beat the Benchmark*
  • Invest in companies and countries (sovereign bonds) meeting Nordea’s ESG standards
  • Create a lasting impact

Far from targeting performance despite ESG constraints, we believe that our ESG process helps us to identify the winners of tomorrow.

Ultimately, we believe that full ESG integration is the best means to reconcile financial returns with responsible investment standards. This clear philosophy spreads through our entire investment process, where responsible investment is married with fundamental analysis.

2. A manager with strong ESG expertise and credentials
Responsible investment is not something that just happens. It takes work, skills and experience.

Nordea Asset Management’s (NAM) commitment to be a responsible asset manager began over 30 years ago when we launched our first sector screened funds: it is deeply rooted in our Nordic DNA. It‘s anchored in our corporate culture, philosophy and business model.

NAM’s Responsible Investment (RI) activity ramped up significantly from 2007, when we became an early signatory of the UN’s PRI. In 2009, our Responsible Investment Team was formed. Today, the team is well-established and covers the full spectrum of responsible investment and active ownership. It works closely with the portfolio managers of the STARS funds to integrate ESG deep into the investment process. This includes driving our engagement activity and participating in international initiatives as diverse as the Sustainability Accounting Standards Board’s (SASB) Investor Advisory Group, the Corporate Human Rights Benchmark and the Carbon Disclosure Project.

The RI team has been recognised by independent entities such as Extel and the European magazine Capital Finance International (CFI). CFI awarded Nordea Asset Management “Best ESG Investment Process in Europe” for six consecutive years (2014–2019).

Over the past decade, we have developed a strong and proven RI framework. This is evidenced by the fact that the UNPRI gave our RI strategy and governance framework a top score of A+.

3. Active ownership in action
Do you simply to want to minimise your exposure to “bad” companies, or do you want to go further?

Change, or creating impact through active ownership is a key and distinctive part of our investment approach for the STARS range. As well as using our voting rights at AGMs, some of our most widely used forms of active ownership are investor initiatives and dialogues with companies. We engage proactively with companies in the STARS portfolios when we see material ESG risks that may not be adequately managed or opportunities that may not be fully capitalised on.

Engagements include both the portfolio manager and RI team members, who compile a list of key areas to address and a roadmap to define follow-ups. Individual engagements include conference calls and face-to-face meetings with management, but can also dig deeper through on-site meetings with suppliers and field trips to the areas where companies operate in order to gain valuable insight into their business practices. Engagements can also be conducted in conjunction with other investors as collaborative engagements, such as Climate Action 100+ (CA100+) and the PRI Sustainable Palm Oil working group.

We see active ownership as a way to preserve and enhance long-term shareholder value, as well as create a positive impact for the broader society.

4. Transparency
As asset managers, we require transparency and good data provision from the companies we invest in. You, as investors, deserve the same from your managers. You should expect to find information on responsible investment activities via your manager’s website, through their RI Annual Reports and through the PRI reporting framework. At NAM, to complement our Corporate Governance policy, we also offer a voting portal that shows up-to-date details of our voting activities.

In addition we offer detailed fund-level sustainability reporting for our ESG-enhanced strategies. For the STARS equity funds we have developed quarterly ESG – Sustainability and Engagement Reports. These reports include details of how a fund compares with its benchmark both on moving towards the UN’s Sustainable Development Goals (SDGs) and carbon intensity. In-depth engagement case-studies add colour and detail regarding our approach to active ownership.

5. Independent validation
No matter what RI approach your manager takes, you need to know that their products truly adhere to strict ESG standards. Responsible Investments’ different forms can be hard to compare, but an external validation can give you the confidence you need when choosing ESG funds.

In recent years, ESG labels have been developed in different markets across Europe. These labels validate the integrity of a fund’s ESG approach, investment process and transparency according to guidelines typically defined by local bodies – in the absence of a common EU framework – such as the Belgian Towards Sustainability label, or the German FNG-Siegel. While each label takes a slightly different angle and defines its own criteria, they all strive to provide externally audited quality control and guidance to investors.

Generally, funds labelled by an independent agency display a high level of credibility and transparency. A good way to gain the highest confidence that a fund meets a wide-ranging sustainability criteria is to look for funds that have been awarded more than one label based on numerous, but strict criteria from several independent bodies. NAM’s STARS funds meet the high requirements of several leading independent ESG labels. This demonstrates the funds’ success in achieving true ESG integration in their investment process.

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*There can be no warranty that an investment objective, targeted returns and results of an investment structure is achieved. The value of your investment can go up and down, and you could lose some or all of your invested money.

Nordea Asset Management is the functional name of the asset management business conducted by the legal entities Nordea Investment Funds S.A. and Nordea Investment Management AB (“the Legal Entities”) and their branches, subsidiaries and representative offices. This document is intended to provide the reader with information on Nordea’s specific capabilities. This document (or any views or opinions expressed in this document) does not amount to an investment advice nor does it constitute a recommendation to invest in any financial product, investment structure or instrument, to enter into or unwind any transaction or to participate in any particular trading strategy. This document is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instruments or to participate to any such trading strategy. Any such offering may be made only by an Offering Memorandum, or any similar contractual arrangement. This document may not be reproduced or circulated without prior permission. © The Legal Entities adherent to Nordea Asset Management and any of the Legal Entities’ branches, subsidiaries and/or representative offices.