This report shows public data only. Is this your organisation? If so, login here to view your full report.

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

PRI reporting framework 2020

You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income » (C) Implementation: Integration

(C) Implementation: Integration

FI 10. Integration overview

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

In the Norwegian and Nordic fixed income portfolios, we have chosen integration as our ESG incorporation strategy as it fits best with our goal of achieving increased returns over time through responsible investment. In our view, the way an issuer handles material ESG risks may affect creditworthiness. We therefore aim to integrate ESG considerations into our ongoing credit assessment procedures. We do this by making use of the ESG analyses that are produced in-house. These are incorporated into the credit rating we assign that issuer.

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

SSA

Folketrygdfondet's principles for responsible investment cover all asset classes. For SSA, investments are limited to sovereign bonds and municipal bonds in the Nordic market. Hence, financial risk due to issuers' management of ESG issues is minimal. We nevertheless review annually potential adjustements to our approach to ESG integration per asset class in response to changes in the underlying risk. Thus far, given the risk profile, our integration of ESG into SSA investing does not extend beyond this initial review. 

Corporate (financial)

We prioritize ESG analysis and engagement with issuers before investing, as we have the greatest influence at this stage. Folketrygdfondet's fixed income investments in the financial sector are in investment grade issuers. As a result, the risk of material ESG events is generally lower than for other sectors.

Corporate (non-financial)

A common challenge for fixed income ESG analysis is the lack of data on issuers. Folketrygdfondet's fixed income investments include small and/or unlisted companies without comprehensive reporting or analyst coverage. As a result, Folketrygdfondet uses internally developed sector-based ESG risk guides to analyze issuers for material sustainability risks. We focus primarily on the high yield sector, where the risks are determined to be greatest.

10.3. Additional information [OPTIONAL]


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 in Additional Information

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

For SSA, the various ESG factors are assessed at an overarching level in the annual assessment of Folketrygdfondet's approach to responsible investment. Should developments in the asset class ESG risk profile warrant greater scrutiny, that would be incorporated into our day-to-day investment processes.

Corporate (financial)

We review the potential significance of ESG issues and investigate them accordingly. The information derives from in-house ESG research and analysis. For the financial sector, which consists primarily of investment grade issuers, Folketrygdfondet incorporates ESG information into the investment process when likely to be material.

In addition, in order to develop a common understanding of ESG-related issues, Folketrygdfondet includes ESG-related information as a fixed agenda item for the daily morning meeting in the front office (both equity and fixed income investment teams). Folketrygdfondet's dedicated ESG resource also presents information of particular relevance to the fixed income portfolio at the fixed income team's monthly strategy meetings.

 

Corporate (non-financial)

We review the potential significance of ESG issues and investigate them accordingly. The information derives from in-house ESG research and analysis. Folketrygdfondet prioritizes ESG analysis of high yield issuers prior to investment. For investment grade issuers, Folketrygdfondet incorporates ESG information into the investment process when likely to be material.

In addition, in order to develop a common understanding of ESG-related issues, Folketrygdfondet includes ESG-related information as a fixed agenda item for the daily morning meeting in the front office (both equity and fixed income investment teams). Folketrygdfondet's dedicated ESG resource also presents information of particular relevance to the fixed income portfolio at the fixed income team's monthly strategy meetings.

12.3. Additional information.[OPTIONAL]


Top