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KLP

PRI reporting framework 2019

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ESG issues in asset allocation

SG 13. ESG issues in strategic asset allocation

13.1. Indicate whether the organisation undertakes scenario analysis and/or modelling and provide a description of the scenario analysis (by asset class, sector, strategic asset allocation, etc.).

Describe KLP is a member of the UNEPFI pilot project on implementing the TCFD recommendations for investors. Through this project, KLP conducts a climate risk assessment of its investment in listed bonds and equities, which involve the application of future scenarios describing future conditions related to transition risk and physical risk .

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]

Each time an asset class is evaluated, ESG issues are taken into consideration.

Furthermore, KLP considers ESG issues in strategic asset allocation in relation to specific impact investments: 1) co-investments with Norfund in renewable energy in developing countries through KNI, and 2) investments in the Norwegian Microfinance Initiative (NMI). See https://www.klp.no/om-klp/samfunnsansvar/ansvarlige-investeringer/investeringer-for-b-rekraftig-utvikling (Norwegian) and http://english.klp.no/about-klp/corporate-responsibility#http://english.klp.no/about-klp/corporate-responsibility/society-and-environment (brief English summary).


SG 13 CC.

13.4 CC. Describe how the organisation is using scenario analysis to manage climate-related risks and opportunities, including how the analysis has been interpreted, the results and any future plans.

Describe

KLP employ scenario analysis in the screening and subsequent analysis of climate risks, in accordance with the guidance set forth in TCFD. KLP is currently in the process of developing climate risk scenarios for all its business areas, including those used in the UNEP FI TCFD pilot project. KLP develop a mixture for quantitative scenarios (used for the climate risk assessment of our listed equities and bonds) and qualitative or semi-quantiative scenarios for our remaining business areas subject for climate risk screening.

A key approach to KLPs climate risk analysis work is to work systematically to enhance internal competence on climate change related questions and understanding on potential financial risks that may arise therein. Scenario analysis is key in this respect, and more of our emphasis relate to using scenario analaysis and climate risk screening to develop our internal knowledge, rather than believing that we are able to make valid climate risk assessment at this point in time where the general knowledge is immature, and data, methods and tools are generally insufficient.

Hence, KLPs plan moving forward is to continue its work on developing its competence on climate risk, including effort on developing better, more valid and more applicable climate risk scenarios, in order to progress towards climate risk analysis with less uncertainty in the future. KLP is committed to this work, and it has a high priority in the organization.

Describe

Based on the initial results from the climate risk assessment, and following the continuous work on improving the climate risk assessment, KLP will have an on-going consideration on the validity and uncertainty in output from the climate risk assessment, with a view to consider how the results can be implemented in the company wide risk management process, investment strategies and investment processes.

Describe

KLP has, in collaboration with other key institutional investors, already initiated a dialogue on climate risks and TCFD reporting, with the key companies on Oslo stock exchange that are relevant in the consideration of their climate risk exposure. These meetings was initiated in 2018 and will continue in 2019 and onwards. KLP also take an active role in the contribution of competence development considering practical approaches to climate risks towards the finance industry, companies, politicians and other companies, i.a. by arranging seminars and publishing reports.

13.5 CC. Indicate who uses this analysis.

13.6 CC. Indicate whether the organisation has evaluated the impacts of climate-related risk, beyond the investment time-horizon, on the organisations investment strategy.

Describe

KLP view, which is aligned with other companies that are mature on climate risk assessment (e.g. se report issued by oil and gas companies through WBCSD – see report from this link: https://bit.ly/2LyDUkD), is that it is necessary to be careful in conducting a too detailed interpretation of the results from climate risk assessment at this point. This relates to general low knowledge about the issue (e.g. how will climate risks scenarios play out?), and lack of data, methods and tool to conduct the assessment. KLP is participating in what is possible a world leading TCFD pilot through the UNEP FI, and the underlying methodology fails to i.a.: cover the scope of risk factors set forth by the TCFD and capture any inter-sector and intra-sector dynamics. However, KLP will continuously consider how climate risk assessment and results thereof, can be integrated into consideration of investment strategy and investment process, even if fully valid results are available.

Having this said, KLP do several changes in its investments that are likely beneficial to the company's climate risk assessment, such as excluding companies with the highest carbon intensity, committed to increase its green investment with 1 bn. USD annually, and by engaging with companies and industry level stakeholders, to improve the climate change performance in its portfolios.

13.7 CC. Indicate whether a range of climate scenarios is used.

Indicate the climate scenarios the organisation uses.
Provider
Scenario used
IEA
IEA
IEA
IEA
IEA
IRENA
Greenpeace
Institute for Sustainable Development
Bloomberg
IPCC
IPCC
IPCC
IPCC
Other

Other (1) please specify:

          Several SSP scenarios also used
        
Other
Other

SG 14. Long term investment risks and opportunity

14.1. Some investment risks and opportunities arise as a result of long term trends. Indicate which of the following are considered.

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

Specify the AUM invested in low carbon and climate resilient portfolios, funds, strategies or asset classes.

Total AUM
trillions billions millions thousands hundreds
Currency
Assets in USD
trillions billions millions thousands hundreds

Specify the framework or taxonomy used.

This figure is KLP's investments in renewable energy, green buildings, green bonds.

In addition, KLP has invested in an eco-labelled equity fund (the Nordic Svanen label).

other description

          KLP is active in enhancing climate change related knowledge and competence in the market place.
        

14.3. Indicate which of the following tools the organisation uses to manage climate-related risks and opportunities.

other description

          KLP also conduct climate change related alignment tests of parts of its portfolio, as provided by the 2-degree investment initiative.
        

14.5. Additional information [Optional]


SG 14 CC.

14.6 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
Weighted average carbon intensity
          Information
        
          tonnes CO2e/mNok revenue
        
          A company's emission relative to revenue is allocated on the basis of portfolio weights (current value of investment relative to current portfolio value) for the entire portfolio. Methodology aligned with the TCFD annex D "supplemental guidance for the finance sector
        
Carbon footprint (scope 1 and 2)
          Information
        
          tonnes CO2e/mNok invested
        
          Absolute carbon emission (scope 1 and 2) for the portfolio is calculated using a equity ownership approach for each company. The sum of emission in tCO2e. is divided  by the market value of the portfolio. Methodology aligned with the TCFD annex D "supplemental guidance for the finance sector
        
Total carbon emissions
          Information
        
          tonnes CO2e
        
          Calculation of all emissions from operations, such as energy use and waste. All buildings where KLP itself is responsible for operations, as well as buildings where data on tenants' electricity use is available, are included in the calculations
        
Carbon intensity
          Information
        
          tonnes CO2e/mNok revenue
        
          Calculation of all emissions from operations, such as energy use and waste. All buildings where KLP itself is responsible for operations, as well as buildings where data on tenants' electricity use is available, are included in the calculations. 
Absolute emission (Scope 1 and 2) is calculated using an equity ownership approach for each company and divided on the company's revenue, where the revenue is also calculated using an equity ownership approach,   for all companies in the portfolio. Methodology aligned with the TCFD annex D "supplemental guidance for the finance sector
        
Exposure to carbon-related assets
          Information
        
          market value of carbon-related assets as a percentage of AUM
        
          The percentage of of carbon-related assets (defined as fossil energy companies) in the portfolio relative to current portfolio value
        

14.8 CC. Indicate whether climate-related risks are integrated into overall risk management and explain the risks management processes for identifying, assessing, and managing climate-related risks.

Please describe

 

KLP has initiated a broad organization wide process to develop and enhance its competence concerning climate risks, considering all key business areas as well as asset classes. The process identifies climate risk factors, and along the way, develop competence, and set direction for continuous improvement in this space. The aim that climate risk shall be fully integrated in the company risk management process. The next step in 2019 is to develop scenarios and integrate climate risk on our ORSA report. A full integration in KLP's risk management processes is challenging, considering the vast uncertainty and complexity in conducting valid climate risk assessment for a global and diversified investment portfolio.

14.9 CC. Indicate whether the organisation undertakes active ownership activities to encourage TCFD adoption.

Please describe

KLP has, in collaboration with other key institutional investors, already initiated a dialogue on climate risks and TCFD reporting, with the key companies on Oslo stock exchange that are relevant in the consideration of their climate risk exposure. These meetings was initiated in 2018 and will continue in 2019 and onwards. KLP also take an active role in the contribution of competence development considering practical approaches to climate risks towards the finance industry, companies, politicians and other companies, i.a. by arranging seminars and publishing reports.


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

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

15.2. Indicate the percentage of your total AUM invested in environmental and social themed areas.

0.04 %

15.3. Specify which thematic area(s) you invest in, indicate the percentage of your AUM in the particular asset class and provide a brief description.

Area

Asset class invested

0.22 % of AUM

Brief description and measures of investment

Measures: investment value + production capacity

Description: These investments are in renewable energy projects, ie. new projects increasing the production capacity. Investements are made through fund structures and partnerships.

Asset class invested

10 % of AUM

Brief description and measures of investment

Measures: Market value of investments

Description: KLP is both investing and operating its own property portfolio. We report on the share of green buildings in our portfolio, see sustainability reporting at http://english.klp.no/polopoly_fs/1.39998.1521710121!/menu/standard/file/KLP_Annualreport_2017.pdf

 

Asset class invested

0.08 % of AUM

Brief description and measures of investment

Measures: market value of investments

Description: Investments in the Nordic Microfinance Initiative (NMI).

          Financial sector in developing countries
        

Asset class invested

0.08 % of AUM

Brief description and measures of investment

Measures: market value of investments

Description: Investments in banks in Africa, through the investment company Arise, in collaboration with Norfund.

15.4. Please attach any supporting information you wish to include. [OPTIONAL]



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