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NN Investment Partners

PRI reporting framework 2019

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You are in Direct - Listed Equity Incorporation » ESG incorporation in actively managed listed equities » Implementation processes » (C) Implementation: Integration of ESG factors

(C) Implementation: Integration of ESG factors

LEI 08. Review ESG issues while researching companies/sectors

08.1. Indicate the ESG factors you systematically research as part of your investment analysis and the proportion of actively managed listed equity portfolios that is impacted by this analysis.

ESG issues

Proportion impacted by analysis
Environmental

Environmental

Social

Social

Corporate Governance

Corporate Governance

08.2. Additional information. [Optional]

At NN IP, we systematically and fully integrate ESG criteria in our investment-decision making process. At the heart, ESG analysis is conducted by our in-house team of equity analysts. We start with raw ESG data as an input from data vendors such as Bloomberg, ISS, MSCI, Refinitiv and Sustainalytics. This feeds into our proprietary ESG assessment framework capturing a company's relative ESG performance. In addition, we make extensive use of sell-side ESG and thematic research from both a topic and industry angle.

 


LEI 09. Processes to ensure integration is based on robust analysis

09.1. Indicate which processes your organisation uses to ensure ESG integration is based on a robust analysis.

09.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your integration strategy.

09.3. Indicate how frequently third party ESG ratings that inform your ESG integration strategy are updated.

09.4. Indicate how frequently you review internal research that builds your ESG integration strategy.

09.5. Describe how ESG information is held and used by your portfolio managers.

09.6. Additional information.[Optional]

At NNIP, detailed ESG information is readily available throughout the organisation. Our analyst systematically incorporate ESG factors in their research processes on companies, and are taking continuous steps to further increase their knowledge. In this there is close cooperation with the Responsible Investment team, acting as a knowledge hub within our organisation. To ensure quality and consistency, we have a committee reviewing the investment cases, amongst others, based on how the analyst has incorporated ESG factors (which is a key-performance indicator for the analysts), thereby ensuring a systematic use. We actively participate in knowledge-sharing events to further accelerate ESG integration at our firm and share best-practices with the wider investment community.


LEI 10. Aspects of analysis ESG information is integrated into

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

10.1. Indicate which aspects of investment analysis you integrate material ESG information into.

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

          thematic issues resulting from international conferences such as Climate COP Paris
        

Proportion of actively managed listed equity exposed to investment analysis

10.2. Indicate which methods are part of your process to integrate ESG information into fair value/fundamental analysis and/or portfolio construction.

          SWOT analysis, sensitivity analysis
        

10.3. Describe how you integrate ESG information into portfolio weighting.

We apply ESG information both from a top-down as well as a bottom-up perspective.

Top-down: we assess how material ESG trends and general longer-term trends are providing risks and opportunities in terms of financial and non-financial performance (themes such as changing climate, rising urbanization, emerging middle class, ageing population, health and wellbeing, rising cyber dependency, and SDGs).

Bottom-up: in our bottom-up analysis - which is typically conducted by our in-house team of dedicated equity analysts - we analyse the absolute and relative ESG performance of companies and whether we believe the market is underestimating or overestimating ESG risks and/or opportunities. We focus on the material, longer-term issues to the value creation of investee companies.

Four steps are important in this:

Identify the material issues

Assess the performance on the material issues

Integrate the material issues into the financial analysis

Have an active dialogue with the companies in which we are invested.

Based on these different viewpoints, our portfolio weighting differs from our benchmark as we apply and integrate ESG information to strengthen our conviction. The central question for us is: how sustainable is a company's value creation longer term?

Controversies: we specifically eliminate companies with the highest ESG controversies.

10.4. Describe the methods you have used to adjust the income forecast / valuation tool

The way ESG information is integrated within the forecasts and valuation of the equity analysis process is twofold. In case we consider the ESG factors to have a visible impact on actual company cashflows (in terms of magnitude and timing), we will adjust our financial value drivers (e.g. revenues, margins, capex) accordingly. In case we consider the ESG factors as mainly impacting the risk profile of the company (in terms of risk to cashflow generation and/or risks towards company and/or management perception), but without a clear indication of magnitude and timing, we will adjust the cost of capital for the company to incorporate the associated risks.

10.5. Describe how you apply sensitivity and/or scenario analysis to security valuations.

in case of companies or sectors where certain ESG aspects can materially drive the valuation and in case there is considerable uncertainty surrounding the most likely (regulatory) trajectory of these ESG aspects the financial analysis will incorporate different scenarios to account for the most likely, the worst case and best case scenario. Alternatively a sensitivity analysis can be done to vary the different ESG inputs and see what the implications would be for the margins, sales or valuation of the company. Examples of scenario analysis we have used in the past is for example the trajectory of CO2 regulation for car companies and the supply chain of auto companies, modelling different scenarios for penetration of electric vehicles, hybrids and combustion engines and the effects on the supply chain.

10.6. Additional information. [OPTIONAL]


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