Our Responsible Investment Policy sets out the principles and strategy that govern our investment process. We are committed to conducting our business with respect for all fundamental and internationally recognized treaties and declarations: the Universal Declaration of Human Rights of 1948, the International Labour Organization’s (ILO) conventions, international humanitarian law, and of course the UN Principles for Responsible Investment.
All our external managers are signatories of UN PRI as a minimum. Furthermore, we expect them to demonstrate that the principles of responsible investment are complied with in practice. We can therefore delegate much of the day-to-day environmental, social and governance activities to our managers, but with robust oversight, dialogue and transparency between both parties.
We strongly believe that sustainability risk should be a natural part of the risk- and investment-management process, and we do not accept this as being a separate activity by our managers or by ourselves. We have close cooperation with our managers on a variety of ESG issues, and we prefer an open, change-driven process rather than predefined criteria and/or an exclusion list. Sustainability is one of many factors to consider in asset management, and the most important challenges will vary and change over time.
Across asset classes
We incorporate ESG factors into our investment process across asset classes and investment styles.
Active equity: As an active and forward-looking investor, investing in sustainable business models is a prerequisite for securing long-term returns for our customers. We seek active managers who consider sustainability risk to be a natural ingredient of the investment thesis, ensuring the flexibility to invest in technological, regulatory changes and consumer trends; an active, future-oriented and dynamic approach rather than a static, backward-looking and passive approach.
For an active manager, we believe responsible investment is more about investing in sustainability trends and managing change, rather than avoiding certain companies on a predefined exclusion list. We believe that active managers in their daily decision-making are in a better position to influence current business practice as well as the future direction of companies and industries where there are sustainability issues. Active fund managers typically know their companies and management very well, and are in a better position to influence and impact on a higher strategic level through their ownership discussions. Our managers have typically contributed to improvements in corporate governance practices and the process of managing social and environmental risks in many companies. Unlike passive managers, who are dependent on predefined exclusion lists to improve their ESG characteristics, the active manager should be ahead of the game, as they are investing in what they perceive to be future sustainable businesses. This approach takes more time and effort, but we firmly believe that engagement drives real and tangible change on the issues that are important to our clients and to us.
Passive equity: In our passive portfolios, we use index providers who exercise their ownership responsibility through exclusion lists and proxy voting, as these do not know the companies they invest in. We want to use managers who have expertise and knowledge of sustainability, and who have values and sufficient resources to exercise their ownership responsibility in a professional and responsible manner when problems arise in companies in which we have invested.
Fixed income: Our commitment and philosophy is the same for fixed income, but the methodology differs somewhat given the limited opportunity to change the strategic direction of the company.
Real Estate: Our real estate unit that manages commercial properties in Oslo works systematically to improve the indoor environment, reduce environmental risk, increase the use of resources and minimize the overall environmental impact the properties entail. We are certified in accordance with the international standard ISO 14001.
Engagement - Active ownership
A special feature of our asset management is that we are independent and use external managers in our portfolio construction. These managers make the detailed decision and risk analysis about which companies to invest in. This gives us the flexibility to select optimal managers for each region and strategy. We assign great importance, time and energy to selecting a diversified group of high-quality managers with high alpha-capacity and profound understanding of the wide variety of risks, including ESG. With this, we have experienced that we can have a much larger impact than our size in isolation would suggest, as we are influencing larger pools of money than our own, via the external asset manager. We have a close relationship with our managers through our common goals, and see them as part of our investment team.
To exclude a company with negative ESG issues is not usually a sustainable and constructive long-term solution, as the change of ownership in itself (often to less responsible owners) will not lead to an improvement in the actions of the company. We see exclusion as the last way out and prefer to use owner-engagement in order to influence a company in a more sustainable and responsible direction.
Climate change is currently the most important risk facing our economy and ecosystem. We recognise that long-term climate change will dramatically change the environment upon which our societies and all economic activities depend. Ignoring this will lead to catastrophic results and consequences for life on Earth, and the other sustainability goals will be impossible to achieve. Therefore, climate change is one of the key ESG engagement themes for our portfolio and our investment managers. Their responsible investment team engages with many companies on this topic.
TCFD: Improved understanding of climate-related risks and opportunities is key to delivering on the Paris 2-degree agreement. We recognise the importance of reliable, consistent and comparable information about climate-related risk and opportunities that all companies face. We strongly support the TCFD initiative as it has the power to increase transparency, which makes markets more efficient. Rather than focusing too much on reporting quantitative data, however, we see the strategic discussion from board/management regarding how their company is challenged or revitalised by the Paris accord as the most important and relevant piece of information in the TCFD disclosure.