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NN Investment Partners

PRI reporting framework 2019

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ESG incorporation in actively managed fixed income

Implementation processes

FI 01. Incorporation strategies applied

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
89 Screening alone
0 Thematic alone
0 Integration alone
10 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
1 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (financial)
0 Screening alone
0 Thematic alone
0 Integration alone
99 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
1 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (non-financial)
0 Screening alone
0 Thematic alone
0 Integration alone
99 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
1 All three strategies combined
0 No incorporation strategies applied
100%

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

The basis for NN IP's responsible investment approach is NN Group's Responsible Investment Framework policy. Following this policyNN IP incorporates the following in its Fixed Income approach:

NN IP applies the restricted list of NN Group. This includes Countries: Sovereign issuers involved in severe and systematic violations of Human Rights, against which arms embargoes have been issued by the UN Security Council

Based on NN’s exclusion list, NN IP also does not invest in controversial weapons, arms trade entities that are subject to embargoes and tobacco production, as well as oil sands involved companies.

We use ESG integration because we strongly believe the incorporation of ESG factors can enhance the risk-return profile of our investments.

For clients who want to take Responsible Investments a step further, we offer specialized Sustainable and Impact funds and tailor-made solutions.

In the Green Bond fund and the collaboration with FMO, the SDG's also play a role in determining the investment universe 

01.3. Additional information [Optional].

 

 

 


FI 02. ESG issues and issuer research (Private)


FI 03. Processes to ensure analysis is robust

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

specify description

          ESG committee meets on quarterly basis, with representatives from all investment teams to discuss current status of ESG incorporation, and potential improvements
        

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

          ESG awareness throughout the entire investment culture
        

03.3. Additional information. [Optional]

Comprehensive research is undertaken/sourced to determine issuers’ ESG performance. Mentality regarding ESG awareness is embedded in the NN IP culture to such an extent that responsible investing has become common sense investing. Detailed ESG information is readily available throughout the organization.


(A) Implementation: Screening

FI 04. Types of screening applied

04.1. Indicate the type of screening you conduct.

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

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

The basis for NN IP's responsible investment approach is NN Group's Responsible Investment policy framework. NN IP applies the restricted list of NN Group. This includes Countries: Sovereign issuers involved in severe and systematic violations of Human Rights, against which arms embargoes have been issued by the UN Security Council. Based on NN’s exclusion list, NN IP also does not invest in controversial weapons, arms trade entities that are subject to embargoes and tobacco production. NN IP’s RI approach is a reflection of our investment beliefs, the organisation’s values, relevant laws, and internationally recognized standards such as the United Nations Global Compact and OECD Guidelines for Multinational Enterprises (hereafter: OECD Guidelines), based on which minimum requirements have been developed that have to be adhered to in the investment process. NN Group entities comply with all applicable sanction laws and regulations. For our Sustainable corporate bond funds, negative screening is based on controversial behaviour (norms-based screening) as well as exclusion of certain sectors  (gambling, adult entertainment, fur and specialty leather and weapons). NN IP applies positive screening for the Euro Green Bond fund on top of the already restrictive Green Bond Principles criteria.

 

04.3. Additional information. [Optional]


FI 05. Examples of ESG factors in screening process (Private)


FI 06. Screening - ensuring criteria are met

06.1. 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?
Positive/best-in-class screening
Norms-based screening

06.2. Additional information. [Optional]

Information is reviewed on a regular basis, just as changes to the restricted list of companies and countries. The restricted companies and countries fall under NN IP's pre-trade compliance checks, resulting in automatically blocking trades in them. Regular post-trade compliance checks are in place as well. The ESG committee reviews changes to the restricted list on a quarterly basis.

In addition, KPMG audits sustainble fixed income strategies and mandates for the annual report of NN  Group 


(B) Implementation: Thematic

FI 07. Thematic investing - overview (Private)


FI 08. Thematic investing - themed bond processes

08.1. Indicate whether you encourage transparency and disclosure relating to the issuance of themed bonds as per the Green Bonds Principles, Social Bond Principles, or Sustainability Bond Guidelines..

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

If issuers are not disbursing  bond proceeds as committed to, we would  initially engage with them to understand why this has been the case. In case this will not lead to a full disbursement as has been committed to in the short run, the bond will be re-assessed in NN IP’s monthly green bond workstream and could lead to removing the eligibility label of the bond. If unlabelled the bond will have to be sold within 3 months.

08.3. Additional information. [Optional]


FI 09. Thematic investing - assessing impact

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

09.2. Additional information. [Optional]


(C) Implementation: Integration

FI 10. Integration overview

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

As an integral part of our research process, ESG analysis is carried out by NN IP's mainstream analysts. Analysts have access to several independent ESG databases, including Sustainalytics, ISS, Bloomberg, Refinitiv and others. This includes information on how each company scores on different ESG factors compared to its sector average and if there are any structural issues or controversies from ESG perspective. ESG factors covered include, amongst others, environmental damage and climate change, bribery and corruption, human rights, health and safety and corporate governance. These data are also used for our dedicated Sustainable funds. The analysts incorporate the results of their analysis into fixed income research templates, called score cards, ensuring they have looked at all material aspects. This process is quite similar to the ESG integration process on the equity side, but with more emphasis being put on the downward risks. Portfolio managers at NN IP take the score cards into account when making investment decisions. NN IP also has a partnership with Climate Bond Initiative which provides access to their database on the green bond market.

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

SSA

We consider the biggest ESG risks to be in the Emerging Markets space, in particular in regards to governance and human rights concerns. Our EMD investment process includes ESG integration, where our focus is primarily on the Governance factor. We measure Governance in our proprietary sovereign risk model, through a quantitative assessment of inter alia institutional quality and competitiveness. We believe a well-functioning government as well as a competitive legislative framework assist in allowing companies and individuals to invest and grow, and support in earning foreign exchange. Our research shows that institutional quality (e.g. Governance) matters on a 3-5 year horizon. Data do, in our view, not always capture, the incremental improvement (deterioration) in governance performance that can occur. The newly elected president in Pakistan, for example, might (by only looking at historical data) be punished for the policies of his predecessors, while we believe that he has the intention and support to achieve positive change going forward. We therefore do not rely solely on the quantitative data that our Sovereign Country Credit Model produces, our analysts and portfolio managers always add a qualitative opinion to that. We incorporate Governance because we believe it is leading in defining the state of ESG and has the most predicative power when it comes to spread levels.

Corporate (financial)

ESG research is conducted in-house by our credit analyst teams, who explicitly score companies on their performance on Environmental, Social and Governance factors as part of their research process. The result of our in-house credit analysis, including the assessment of the company's performance on ESG factors, is documented into a company score card for each issuer under coverage. Our in-house ESG specialists support the ESG analysis conducted by our credit analyst teams.

Corporate (non-financial)

ESG research is conducted in-house by our credit analyst teams, who explicitly score companies on their performance on Environmental, Social and Governance factors as part of their research process. The result of our in-house credit analysis, including the assessment of the company's performance on ESG factors, is documented into a company score card for each issuer under coverage. Our in-house RI specialists support and guide this effort.

10.3. Additional information [OPTIONAL]

NN IP has partnered with ECCE (European Centre for Corporate Engagement, linked to University of Maastricht) and conducted research of the link between ESG and performance. We published white papers on the materiality of ESG factors on the performance of equities. The main outcome of this extensive work on equities was that scores momentum and controversy levels were the most relevant factors. NN IP and ECCE are now strengthening their collaboration to span research on credit issuers as well. This academic research is used to gain new insights related to the link between ESG factors and the financial performance of issuers.


FI 11. Integration - ESG information in investment processes

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

Select all that apply
SSA
Corporate (financial)
Corporate (non-financial)
ESG analysis is integrated into fundamental analysis
ESG analysis is used to adjust the internal credit assessments of issuers.
ESG analysis is used to adjust forecasted financials and future cash flow estimates.
ESG analysis impacts the ranking of an issuer relative to a chosen peer group.
An issuer's ESG bond spreads and its relative value versus its sector peers are analysed to find out if all risks are priced in.
The impact of ESG analysis on bonds of an issuer with different durations/maturities are analysed.
Sensitivity analysis and scenario analysis are applied to valuation models to compare the difference between base-case and ESG-integrated security valuation.
ESG analysis is integrated into portfolio weighting decisions.
Companies, sectors, countries and currency and monitored for changes in ESG exposure and for breaches of risk limits.
The ESG profile of portfolios is examined for securities with high ESG risks and assessed relative to the ESG profile of a benchmark.
Other, specify

11.2. Additional information [OPTIONAL]


FI 12. Integration - E,S and G issues reviewed

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

Environment
Social
Governance
SSA

Environmental

Social

Governance

Corporate (financial)

Environmental

Social

Governance

Corporate (non-financial)

Environmental

Social

Governance

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

SSA

ESG research is carried out by the investment analysts who, depending on the portfolio, use Sustainalytics or the EMD governance scorecard for sovereign issuers. This information gives the analyst great insights to determine how each sovereign issuer scores on different factors. The results of these scores are incorporated in investment process.

Corporate (financial)

ESG research is carried out by the investment analysts who use Sustainalytics, information provided by the company, Bloomberg, and other sources. This information gives the analyst a framework to determine how each company scores on different ESG factors. The results of this research are incorporated in each score card. Key in this process is to determine how material the underlying issues are.

Corporate (non-financial)

ESG research is carried out by the investment analysts who use Sustainalytics, information provided by the company, Bloomberg, and other sources. This information gives the analyst a framework to determine how each company scores on different ESG factors. The results of this research are incorporated in each score card. Key in this process is to determine how material the underlying issues are.

12.3. Additional information.[OPTIONAL]


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