Responsible Investments

Antti SavilaaksoNordea - Director of Responsible InvestmentsFinsif - Chairman

Email: antti.savilaakso@nordea.commobile: +358 40 591 5791Twitter: @AnttiSavilaakso

Agenda

• What and how much?• PRI signatories and GSIA numbers

• Why?• Walk through on different motives

• How?

• Few comments on ESG and Risk/Return improvement

• Climate

Traditional financial analysis

ESG issues

Responsible Investment, ESG, Ethical, Green,…

3 •

RI

Principles of Responsible Investment

Social Governance

Environmental

1. We will incorporate ESG issues into investment analysis and decision-making processes.

2. We will be active owners and incorporate ESG issues into our ownership policies and practices.

3. We will seek appropriate disclosure on ESG issues by the entities in which we invest.

4. We will promote acceptance and implementation of the Principles within the investment industry.

5. We will work together to enhance our effectiveness in implementing the Principles.

6. We will each report on our activities and progress towards implementing the Principles.

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Source: PRI at www.unpri.org

Country SignatoriesUSA 183UK 167Australia 129France 114Netherlands 75Brazil 69Switzerland 61Canada 49South Africa 45Germany 45Sweden 34Denmark 33Finland 33…Norway 10…Total 1240

Global Sustainable Investment Alliance - Survey

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Source:GSIA

Responsible investment motives

Ethical/MoralReasons

ReputationalRisk

Management

Risk/ReturnImprovement

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Time1970 1990 2010

Market Size

Business Model

Focus on “what” the company does– Percentage of exposure

­ Revenue/Profit/Assets/Capital Expenditure

Sustainable development – Climate Change

– Depleting Natural Resources

– Changing Demographics

– Globalization

– Health

– …

Controversial Activities – Weapons

– Alcohol

– Tobacco

– Adult Content

– Gambling

– …

Weapons

Tobacco

AlcoholAutomobiles

BanksNuclear power

Mobile phones

Coal Microfinance

Renewable Energy

Education

Corporate Responsibility

• Focus on “how” company operates with stakeholders

ESG Research

Tobacc

o

Solar Panels

9 •

Corporate Responsibility

Business model

Ethical Funds

Corporate Responsibility

Business model

Exclusion

10 •

Best-In-Class

Corporate Responsibility

Business model

Inclusion

11 •

Tobacc

o

Thematic

Corporate Responsibility

Business model

12 •

Solar Panels

Engagement

Corporate Responsibility

Business model

13 •

Nordea – “Stars” -Fund

Corporate Responsibility

Business model

14 •

• Ethical/SRI performance studies are inconclusive • Defining ethical / responsible / SRI compliant company varies considerably

• ESG integration strategies can lead to sizable abnormal returns (Alphas):• Eco-efficiency (Derwall et al., 2005)• Employee Relations (Statman and Glushkov, 2009; Edmans, 2011)• Community Relations (Kempf and Osthoff, 2007, Statman and Glushkov, 2009)• Customer Relations (Gruca, 2005, Fornell 2006)• Corporate Governance (Bhiraj 2001, Ashbaugh 2004)

• Best in class strategies (Kempf and Osthoff, 2007; Statman and Glushkov, 2009)

• High ESG rated companies are less volatile (Di, 2014)

• Responsible Investors are more sticky (Gruber, 1996) • Successful ESG investment requires specific skills (Gil-Bazo et al., 2009)

Risk/Return Improvement

Overview on ESG Alpha findings

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Emerging Stars - Performance

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5+1 Climate Approach

• Background: Internal survey, no consensus on methods

• 1. Engage with policy makers

• 2. Engage with companies

• 3. Carbon footprint

• 4. Integration with portfolio management

• 5. Stars Portfolios

• +1. Divestment

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1. Policy level

• Position• Global framework

• Two degrees target

• Price on carbon

• Nordea Group is a member of Climate Leadership Council (CLC)• Investor risk and pricing on carbon

• Nordea Asset Management is a member of Institutional Investors Group on Climate Change (IIGCC)• NAM signatory to investor statement together with around +350 other investors

• NAM is a fee paying member together with +90 other investors

• To lobby and do collaborative company engagement

18 •

2. Engagement with companies

• Nordea RI analysis meets +200 companies annually, rest of the investment teams (+150 professionals) meet hundreds more.

• Climate/carbon risks are• Are relevant to systematically identify for every company

• Have to be managed accordingly

• Preferably as other business risks with normal risk management protocols

• Carbon reporting • has to take place

• +50% of listed comps in the Nordics/Europe considerably less outside

• has to be accurate and follow the best practice and conventions

• preferably 3rd party audited

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3. Carbon footprinting

• Key in understanding carbon risk in large institutional portfolio’s

• Put carbon footprint in front of client and in between client and portfolio manager

• Discussing carbon is part of our societal role as large financial institution

• RFP with key providers, now partnering with Trucost

• Founding signatory the Montreal Pledge• Commitment to footprint all equity portfolio by Sep of 2015

• The first asset manager and among the first investors in the Nordics

• Beware of the footprinting methodology challenges!• Missing information results to estimation

• Scope 1+2+3 and double counting

• Financed Emissions and “handprint”

• Fixed Income and multi-assets portfolio’s

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4. Integration

• “½ of the carbon footprint can be mitigated without a dent in tracking error”

• RI team helping to identify “stranded assets” and helping portfolio managers to manage it

• Factor portfolios researched• Tool to helping portfolio managers to minimize tracking error

• Climate and Environment fund established since 2007• Now actively promoted

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5. Stars Portfolios

• Carbon/Energy important part of the stars analysis• Acknowledgement

• Policy

• Management systems

• Efficiency measures and capex

• Performance

• Reporting and goal setting

• Heavy carbon emitters without matching approach likely to be not-investable

• Carbon footprints for all portfolio’s well below benchmark

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+1. Divestment

• “Divestment is an outcome of carbon analysis, not a strategy of carbon management”

• Regardless of the outcome, the discussion will not go away• Would be naïve for any investor, particularly asset management, to think it does not

matter

• Nordea’ s divestment decision done and is currently being applied• >90% of revenue from coal mining with “sanity check” mechanism

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http://esg.nordea.com

“… ESG integration should be seen as a risk management exercise”“… Sasja Besik nominated to Young Global Leader 2011” “… Responsible investment gives new opportunities”“… the sustainable profile makes it easier for our customers to compare funds”

“… through the new external blog we can communicate with our customers and

comment on global trends on an daily basis”