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Storebrand ASA

PRI reporting framework 2017

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You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income

ESG incorporation in actively managed fixed income

Implementation processes

FI 04. Incorporation strategies applied

04.1. Indicate 1) Which ESG incorporation strategy and/or combination of strategies you apply to your actively managed fixed income investments; and 2) The proportion (+/- 5%) of your total actively managed fixed income investments each strategy applies to.

SSA
100 Screening alone
0 Thematic alone
0 Integration alone
0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (financial)
0 Screening alone
5 Thematic alone
0 Integration alone
95 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 All three strategies combined
0 No incorporation strategies applied
100%

04.2. Describe your reasons for choosing a particular ESG incorporation strategy and how combinations of strategies are used.

Screening: Storebrand has chosen a comprehensive screening approach that covers all fixed income investments to reduce the risk of being involved in or supporting unethical/irresponsible business practices. See explanation below for corporate and sovereign bonds

Thematic: Storebrand has developed a market leading approach to investments in Green Bonds to enable our clients to invest in climate/social solutions. A European first Green Bond fund was launched in Sweden in March 2015 and now has just under 3 billion SEK in AUM.

Integration: The Sustainable In vestment team has, together with portfolio managers identified risk based issues that are most relevant to global bond markets. As a result, tailored corruption analyses are delivered from the sustainability team to PM's.

04.3. Additional information [Optional].

Screening for Corporate Bonds

Corporate Bonds are covered by the Storebrand Standard which has been explained earlier in the equities sections.

Screening for Soveregn Bonds

Storebrand aims to invest in corporations and countries that contribute actively to sustainable development. We believe such practices – when integrated in core business – will be financially rewarded. Based on this, Storebrand will not invest in government bonds from countries that

Are systematically corrupt
Systematically suppress basic political and civil rights
Are subject to sanctions imposed by the UN Security Council

As a responsible long term investor, with a geographically diverse investment portfolio, it is in Storebrand’s interests to promote good governance, stability and the maintenance of basic political and civil rights. Therefore Storebrand’s goal is to avoid purchasing bonds from governments that are systematically corrupt, unstable and/or oppressive. To achieve this goal, Storebrand utilizes two corruption indexes, a political and civil rights index and the list of countries subject to UN Security Council sanctions. The indexes and lists chosen are issued by reliable and well respected sources, are methodically rigorous and are updated regularly.

Corruption indexes

Transparency International’s Corruption Perceptions Index (CPI), published annually since 1995, has been widely credited for putting the issue of corruption on the international policy agenda. The CPI ranks almost 200 countries in terms of perceived levels of corruption, as determined by expert assessments and opinion surveys. These assessments and surveys include questions relating to bribery of public officials, kickbacks in public procurement, embezzlement of public funds, and questions regarding the strength and effectiveness of public sector anti-corruption efforts.  http://www.transparency.org/policy_research/surveys_indices/cpi

The World Bank Worldwide Governance Indicators; Control of Corruption Index has been published annually since 1996. The index captures perceptions of the extent to which public power is exercised for private gain, including both petty and grand forms of corruption and "capture" of the state by elites and private interests. Information to put together the index is obtained from business providers, surveys of firms and households, non-governmental organisations and public sector data providers. Exclusion criterion: Countries ranking among the 10 percent worst performers on the Transparency International CPI index and/or the World Bank Control of Corruption index will be excluded from investments at Storebrand. The 10 percent threshold includes any country with the same numerical score as the best performer of the group.

 

Political and Civil Rights Index

Freedom House Freedom in the World index has been published annually since 1972 and ranks over 200 countries and disputed territories countries according to political and civil rights and freedom. To compile the index, analysts used a broad range of sources of information, including foreign and domestic news reports, academic analyses, non-governmental organizations and visits to the region.Exclusion criterion: Countries and territories which are given the lowest rating of 7 will be excluded from investments at Storebrand. Countries are given a rating of 7 when political and civil rights are absent or virtually nonexistent and the nature of the regime is characterised by severe oppression.

UN Sanctions

Under Article 41 of the UN Charter, the UN Security Council may call upon Member States to apply measures not involving the use of armed force in order to maintain or restore international peace and security. Such measures are commonly referred to as sanctions. Current practice at the UN Security Council is to impose targeted measures aimed at removing the circumstances that have led to a threat to, or breach of, international peace and security. Exclusion criterion: Countries that are subject to sanctions imposed by the UN Security Council will be excluded from investments at Storebrand. Countries will not be excluded in cases where sanctions are targeted specifically at independent groups within a country and not at the government of the country.

 

 

 

 

 

 

 


FI 05. ESG issues and issuer research (Private)


FI 06. Processes to ensure analysis is robust

06.1. Indicate how you ensure that your ESG research process is robust:

06.2. Describe how your ESG information or analysis is shared among your investment team.

06.3. Additional information. [Optional]

Both exclusion lists and ESG ratings are read into company databases quarterly and are available to all investment staff.

Formal fund review meetings are conducted annually where sustainability indicies are a central part of the discussion. Portfolio Managers are required to explain investment in poor ESG performers and the fund's overall sustainbility rating is assessed relative to peers.


(A) Implementation: Screening

FI 07. Types of screening applied

07.1. Indicate the type of screening you conduct.

Select all that apply
SSA
Corporate (financial)
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

07.2. Describe your approach to screening for internally managed active fixed income

Negative and Norm based screening

The Storebrand Standard applies to all internally managed funds and portfolios, including all Fixed Income investments, and covers:

1) Product related exclusions: controversial weapons (landmines, cluster munitions, nuclear weapons, chemical/biological weapons) and tobacco

2) Controversial issues: human rights and international humanitarian law, corruption and economic crime, environmental degradation

3) Sector specific exclusions: lowest performing companies in high risk industries + climate related (companies with over 30% of revenues from coal, oil sand companies, palm oil companies causing deforestation).

As of Q4 2016 178 companies were excluded.

Positive/Best in Class screening

The Storebrand Sustainability rating covering 2500 companies also includes fixed income funds and portfolios. Ratings are on a 1-100 scale and consist of companies ESG practice, financial robustness and positioning for global sustainability trends. Analyses leading to the rating are sector based. Some types of bonds (Norwegian regional banks, Swedish Covered Bonds and Bonds issued by Norwegian/Swedish communes are given a group score based on ratings from the Financial sector.

On the basis of this sustainability rating, fixed income funds are rated on a scale of 1-10.

07.3. Additional information. [Optional]


FI 08. Negative screening - overview and rationale

08.1. Indicate why you conduct negative screening.

SSA

SSA

Corporate (financial)

Corporate (fin)

08.2. Describe your approach to ESG-based negative screening of issuers from your investable universe.

Storebrand aims to ensure that its clients assets are not exposed to companies that breach international norms and conventions, including breaches of humanitarian law, human rights, labor rights, corruption guidelines and environmental laws. From a legal perspective Storebrand believes that it has a duty under the UN Guiding Principles for Business and Human Rights to avoid being complicit in breaches of human rights and humanitarian law.

08.3. Additional information. [Optional]


FI 09. Examples of ESG factors in screening process (Not Completed)


FI 10. Screening - ensuring criteria are met

10.1. Indicate which systems your organisation has to ensure that fund screening criteria are not breached in fixed income investments.

Type of screening
Checks
Negative/exclusionary screening?
Norms-based screening

10.2. Additional information. [Optional]

Quarterly reports with updated exclusion ratings and ESG ratings are sendt from the Sustainability team to Compliance functions. Automated, daily compliance checks for both Storebrand Standard (exclusions) and ESG rating thresholds are conducted. If breaches of the exclusion criteria are found fund managers are immediately notified and required to rectify the breach. Compliance breaches of the Storebrand standard are reported at board level. Compliance breaches of ESG fund rating thresholds are followed up in internal periodical fund review meetings.


(B) Implementation: Thematic

FI 11. Thematic investing - overview (Private)


FI 12. Thematic investing - themed bond processes

12.1. Indicate whether you encourage transparency and disclosure relating to the issuance of themed bonds as per the Green Bonds Principles:

12.2. Describe the actions you take when issuers do not disburse bond proceeds as described in the offering documents.

A misuse of bond proceeds would prompt direct contact with the issuer by the fund manager.

12.3. Additional information. [Optional]


FI 13. Thematic investing - assessing impact

13.1. Indicate how you assess the environmental or social impact of your thematic investments

13.2. Additional information. [Optional]

Storebrand requires reporting from issuers of Green Bonds in line with the Green Bond Principles.


(C) Implementation: Integration

FI 14. Integration overview

14.1. Describe your approach to integrating ESG into traditional financial analysis.

The sustainability team rates 2500 issuers with an ESG rating of 0-100. Each issuer is rated on 70 to 100 individual indicators. These indicators form the basis for integration of ESG issues into traditional financial analyses. Storebrand seeks to tailor the ESG input to Portfolio Managers according to the unique set of risks and opportunities that are relevant for portfolio companies.

14.2. Describe how your ESG integration approach is adapted to each of the different types of fixed income you invest in.

Corporate (financial)

Coprorate risk is focused heavily on Governance issues. The Storebrand sustainability team has, together with portfolio managers, identified corruption as a key financially material ESG factor in corporate bonds and delivers specific corruption analysis on portfolio companies in specific funds. By using the analysis provided portfolio managers are able to limit exposure to companies classified as high risk.

14.3. Additional information [OPTIONAL]


FI 15. Integration - ESG information in investment processes

15.1. Indicate how ESG information is typically used as part of your investment process.

Select all that apply
Corporate (financial)
ESG analysis is integrated into fundamental analysis
ESG analysis is integrated into security weighting decisions
ESG analysis is integrated into portfolio construction decisions
ESG analysis is a standard part of internal credit ratings or assessment
ESG analysis for issuers is a standard agenda item at investment committee meetings
ESG analysis is regularly featured in internal research notes or similar
ESG analysis is a standard feature of ongoing portfolio monitoring
ESG analysis features in all internal issuer summaries or similar documents
Other, specify

15.2. Additional information [OPTIONAL]


FI 16. Integration - E,S and G issues reviewed

16.1. Indicate the extent to which ESG issues are reviewed in your integration process.

Environment
Social
Governance
Corporate (financial)

Environmental

Social

Governance

16.2. Please provide more detail on how you review E, S and G factors in your integration process.

Corporate (financial)

All ESG factors are systematically reviewed for financial relevance by the sustainable investment team. However Governance factors have been selected for further development because of the growing body of literature that points to the specific relevance of this pillar in fixed income management.

 

16.3. Additional information.[OPTIONAL]


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