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Norwegian Government Pension Fund Norway (Norwegian Ministry of Finance and Folketrygdfondet)

PRI reporting framework 2020

You are in Direct - Listed Equity Incorporation » ESG incorporation in actively managed listed equities

ESG incorporation in actively managed listed equities

Implementation processes

LEI 01. Percentage of each incorporation strategy

01.1. Indicate which ESG incorporation strategy and/or combination of strategies you apply to your actively managed listed equities; and the breakdown of your actively managed listed equities by strategy or combination of strategies.

ESG incorporation strategy (select all that apply)

Percentage of active listed equity to which the strategy is applied — you may estimate +/- 5%
100 %
Total actively managed listed equities 100%

01.2. Describe your organisation’s approach to ESG incorporation and the reasons for choosing the particular strategy/strategies.

The Ministry has included a chapter on responsible investments in the management mandate. The Mandate provides that the manager, Folketrygdfondet, shall have internal guidelines for integrating considerations regarding good corporate governance and environmental and social issues in its investment activities, in line with internationally recognized principles for responsible investment. Folketrygdfondet shall integrate these considerations in its investment strategy and in its role as an investor and creditor. The Mandate further stipulates that the exercise of ownership rights shall be based on recognized international standards. Folketrygdfondet shall actively contribute to the development of good national standards for responsible investment practice and active ownership. The Ministry has also issued guidelines for observation and exclusion from the Government Pension Fund Global (GPFG). Norges Bank is responsible for decisions on the observation and exclusion of companies, based on the Council on Ethics' recommendation. Folketrygdfondet's Nordic portfolio is subject to decisions regarding the exclusion of companies from the GPFG investment universe.

Folketrygdfondet's guidelines and procedures operationalize the above principles and requirements.

For Folketrygdfondet, ESG incorporation is about reducing risk and achieving increased returns over time. We have financial reasons for evaluating portfolio companies’ actions in relation to ESG issues. As a large, long-term investor, we also have a financial motivation to contribute to well-functioning capital markets in Norway and the Nordic region. We expect companies to operate in accordance with international standards and norms for responsible business conduct, such as the UN Global Compact and the OECD Guidelines for Multinational Enterprises.

Folketrygdfondet has chosen integration as our main ESG incorporation strategy as it best fits our goal of achieving increased returns over time through responsible investment. 

 

01.3. If assets are managed using a combination of ESG incorporation strategies, briefly describe how these combinations are used. [Optional]

We carry out in-house ESG analyses of the Norwegian companies in the portfolio and these qualitative analyses are incorporated into the evaluation of the individual companies' ability to create long-term value for us as a shareholder. 

All of our investments are screened against international norms via a screening service provided by an external provider. In the event of a potential portfolio company norm breach, Folketrygdfondet receives an alert. Any issues are addressed in dialogue with the company. While engagement and active ownership is our method of choice, we reserve the right to consider selling our shares in a company should serious problems not be adequately solved through engagement alone.


LEI 02. Type of ESG information used in investment decision

02.1. Indicate what ESG information you use in your ESG incorporation strategies and who provides this information.

Type of ESG information

Indicate who provides this information  

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

02.2. Indicate whether you incentivise brokers to provide ESG research.

02.3. Describe how you incentivise brokers.

ESG is included as a specific weight in Folketrygdfondet's evaluation of broker research.

02.4. Additional information. [Optional]


LEI 03. Information from engagement and/or voting used in investment decision-making

03.1. Indicate whether your organisation has a process through which information derived from ESG engagement and/or (proxy) voting activities is made available for use in investment decision-making.

03.2. Additional information. [Optional]


(A) Implementation: Screening

LEI 04. Types of screening applied

04.1. Indicate and describe the type of screening you apply to your internally managed active listed equities.

Type of screening

Screened by

Description

The Norwegian Ministry of Finance has issued guidelines for observation and exclusion from the GPFG - Guidelines for the observation and exclusion of companies from the Government Pension Fund Global, adopted by the Ministry of Finance 18 December 2014: https://www.regjeringen.no/en/topics/the-economy/the-government-pension-fund/responsible-investments/guidelines-for-observation-and-exclusion/id594254/

Norges Bank makes decisions on the observation and exclusion of companies, based on recommendations from the Council on Ethics. Folketrygdfondet's Nordic portfolio is subject to  decisions regarding the exclusion of companies from the Government Pension Fund Global's  investment universe. Folketrygdfondet lists the companies excluded from the Fund's portfolio here: http://www.folketrygdfondet.no/dialog/category338.html

The Guidelines and the exclusion and observation procedures are described in more detail on the Ministry of Finance website: https://www.regjeringen.no/en/topics/the-economy/the-government-pension-fund/responsible-investments/id446948/ and on the Council on Ethics website: http://etikkradet.no/en/

One company is currently excluded from Folketrygdfondet's investment universe, for production of tobacco. No new companies were excluded or included from the investment universe during the reporting period. 

 

 

Screened by

Description

Folketrygdfondet uses to an ESG controversy news screening that alerts investors as to potential breaches of international norms on ESG issues. This information is incorporated into our evaluation of the company and we address potential breaches of international norms with company management. While engagement and active ownership is our method of choice, we reserve the right to consider selling our shares in a company should serious problems not be adequately solved through engagement alone.

04.2. Describe how you notify clients and/or beneficiaries when changes are made to your screening criteria.

Please refer to: http://www.regjeringen.no/en/dep/fin/Selected-topics/the-government-pension-fund.html?id=1441 and http://etikkradet.no/en/, particularly, the annual white paper presented to the Norwegian Parliament: https://www.regjeringen.no/en/topics/the-economy/the-government-pension-fund/arlig-melding-til-stortinget/id2357436/ 

 


LEI 05. Processes to ensure screening is based on robust analysis

05.1. Indicate which processes your organisation uses to ensure ESG screening is based on robust analysis.

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

05.4. Indicate how frequently you review internal research that builds your ESG screens.

05.5. Additional information. [Optional]

As noted in the previous responses, Folketrygdfondet is not involved in the screening process leading to Norges Bank's decisions on exclusion. Those decisions follow a comprehensive research process, as outlined in the previously provided links. Question LEI 05.4 presumes that Folketrygdfondet is responsible for assessing the quality of the research used to carry out this proceess. That is incorrect. Please refer to https://etikkradet.no/en/ for more information on the Council on Ethics' organizational structure. 

Folketrygdfondet also uses an external service provider to screen all investments for ESG controversies. 

 


LEI 06. Processes to ensure fund criteria are not breached

06.1. Indicate which processes your organisation uses to ensure fund criteria are not breached.

06.2. If breaches of fund screening criteria are identified, describe the process followed to correct those breaches.

06.3. Additional information. [Optional]


(C) Implementation: Integration of ESG factors

LEI 08. Review ESG issues while researching companies/sectors

08.1. Indicate the proportion of actively managed listed equity portfolios where E, S and G factors are systematically researched as part of your investment analysis.

ESG issues

Proportion impacted by analysis
Environmental

Environmental

Social

Social

Corporate Governance

Corporate Governance

08.2. Additional information. [Optional]

Folketrygdfondet includes all material ESG issues in its investment analysis of specific securities. Although the type of ESG issue that may be material will vary by company, sector, geography, etc., identifying these issues is a core part of Folketrygdfondet's investment philosophy. See Folketrygdfondet's ownership report for more information on how we assess companies: https://www.folketrygdfondet.no/responsible-investment/category388.html

 


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 robust analysis.

          Dedicated ESG resource expected to understand Folketrygdfondet's investment philosophy and contribute with material ESG information relevant to portfolio strategy and positioning
        

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

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

09.6. Additional information. [Optional]

Folketrygdfondet has a team-based approach to active management. We prioritize collaboration and information sharing when compiling our equity and fixed income portfolios. We hold weekly meetings at which the equity team, including the dedicated ESG resource, coordinates our investment decisions. We also hold daily meetings at which the equity, fixed income, and treasury departments exchange information. This includes in-depth reviews of macroeconomic data, trends, sectors, and companies, as well as ESG issues. We use the insights from these meetings in our analysis of the quantitative and qualitative characteristics of portfolios and companies.  In our active management, we select both investment targets and over- and under-weight companies compared to the benchmark index. Our investment decisions reflect financial analysis, ongoing contact with relevant companies and ESG analyses. 


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

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

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

Folketrygdfondet integrates all material ESG information into its forecasts/valuations. This could include, for example, the impact of new regulation on demand for sustainable products.

10.6. Additional information. [OPTIONAL]


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