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Nykredit Realkredit Group

PRI reporting framework 2018

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ESG issues in asset allocation

SG 13. ESG issues in strategic asset allocation

New selection options have been added to this indicator. Please review your prefilled responses carefully.

13.1. Indicate if your organisation executes scenario analysis and/or modelling in which the risk profile of future ESG trends at portfolio level is calculated.

          As part of risk evaluation different significant historic events is used as scenario analysis as well as the more classic stress testing.
        

13.2. Indicate if your organisation considers ESG issues in strategic asset allocation and/or allocation of assets between sectors or geographic markets.

We do the following

13.3. Additional information. [OPTIONAL]

Nykredit plans to do scenario analysis based on the TCFD.


SG 14. Long term investment risks and opportunity

14.1. Describe the process used to identify short, medium and long-term risks and opportunities that could have a material impact on your organisation and its activities.

These issues are adressed at the monthly meetings between the Head of ESG and the CIO, as well as with the CIO, ESG and Allocation teams. The discussion is anchored by the ESG-portfolio reports and different scenario analysis done inhouse or provided by ESG service providers and/or brokers.

The different ESG risk and opportunities differs much from asset class to asset class, and from portfolio to portfolio. How to act on these insights depends on the product. If it is a single portfolio, naturally the portfolio manager needs to act accordingly. If it is a balanced portfolio we have both this opportunity and the opportunity to change the allocation. 

14.1 CC. Describe the processes used to determine which climate-related short, medium and long-term risks and opportunities could have a material impact on your organisation and its activities.

In 2017 the main focus has been oil production and the exposure in different portfolios as this has the most potential material i impact on the portfolios. As part of this the exposure in the fundamental portfolios has decreased during the year. Nykredit has also discussed the scenarios in EMD intensely. 

On top of this Nykredit has tried to find an effective way of assesing climate related risks in Danish Mortgage Backed Fixed Income. For now the conclusion is that as the bonds funds 40% of housing and slightly less of Danish business and agriculture the overarching data from climate related risks in Danish housing and industry is a good proxy. Overall the Danish housing and industry is well prepared climate related risks - be it short, medium and long term with the different initiatives in mind.

14.2. Some investment risks and opportunities arise as a result of long term trends. Indicate which of the following you act on.

14.2a cc. Please describe how you define “short”, “medium” and “long term”, and describe your material climate-related issues over these time horizons.

Definition
Description of material climate-related issues
Short term
          3-6 months
        
          Considerable changes in measured demand for fossil fuels resulting from new technology or regulation.
New tech break throughs.
        
Medium term
          12-24 months
        
          New regulation and effectiveness of implementation of existing, i.e. qoutas.
New strategic initiatives from companies.
        
Long term
          5-10 years
        
          New scientific data on climate related impact.
Direct and indirect risks.
Green transition effects on sectors and countries.
        

14.3. Indicate which of the following activities you have undertaken to respond to climate change risk and opportunity

14.4. Indicate which of the following tools you use to manage emissions risks and opportunities

14.4a CC. Please provide further details on these key metric(s) used to assess climate related risks and opportunities.

Metric Type
Coverage
Purpose
Metric Unit
Metric Methodology
Metric Trend
Limitations / Weaknesses
Weighted average carbon intensity
          Majority
        
          Identify exposure to high energy intense and low margin companies
        
          
        
          Swedish Fund Industry Carbon Intensity
        
          Decreasing
        
          Difficult to explain to customers
        
Carbon footprint (scope 1 and 2)
          Majority
        
          Identify companies energy intensity
        
          Tonnes CO2
        
          CDP
        
          Decreasing
        
          Lacks scope 3
        
Portfolio carbon footprint
          Majority
        
          Identify the compunay and sectoral exposures
        
          Tonnes
        
          CDP/Bloomberg
        
          Decreasing
        
          Only describes energy use and not exposure to green transition
        
Carbon intensity
          Majority
        
          Identify high energy intensity and low margin companies
        
          tonnes/sales
        
          CDP/Bloomberg
        
          Decreasing
        
          Only describes energy use and not exposure to green transition
        

14.5. If you selected disclosure on emissions risks, list any specific climate related disclosure tools or frameworks that you used.

Carbon Disclosure Project database and analysis, MSCI ESG Research and Bloomberg.

14.6. Additional information [Optional]

The analytic tools for surveying and stress testing are still in their developmental phase, but these are improving - both externally and internally developed ones.

14.7 CC. Describe your risk management processes for identifying, assessing, and managing climate-related risks.

Please describe

14.8 CC. Describe your processes for prioritising climate-related risks.

As with other ESG-issues an analysis of materiality is at the hearth of the process.

14.9 CC. Do you conduct engagement activity with investee companies to encourage better disclosure and practices around climate-related risks?

Please describe

Nykredit has engaged with several companies on this issue. Nykredit has voted for better disclosure on a number of occations, if a company is lacking disclosure on climate related risks.

14.10 CC. Describe how you use data from climate-related disclosures.

The most important data for now is the carbon footprint, but with the growth in scenario analysis this will be an important tool going forward. Already today this is an important sign of awareness in the company.


SG 15. Allocation of assets to environmental and social themed areas

New selection options have been added to this indicator. Please review your prefilled responses carefully.

15.1. Indicate if your organisation allocates assets to, or manages, funds based on specific environmental and social themed areas.


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