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Keva

PRI reporting framework 2020

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

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 200%

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

The following disclosure is important and is a backgrounder for both LEI and LEA modules. 

In 2019, we did a major overhaul in our European direct equity strategy. The background was aligning the strategy more tightly to the purpose of the fund in a somewhat changed situation with regards of the fund long-term future cashflow needs (demography-based underlying issues).

The strategy aims at more stable and controlled cashflow generation as the cashflow needs on the pension system will gradually increase in the years to come. A factor in the background was also the renewing our investment beliefs and our principles of our responsible investment beliefs in 2017 and the consequent board-driven RI projects (document links in the strategy-section). From the perspective of RI, the strategic shift led to marked changes in our Europe portfolio (some 60% of the internally managed equity assets). The size of our internally managed domestic strategy is 40% of the (internally managed equity) total.

On the back of the European strategy, the number of shares in our European active strategy came down from 150 to 57. A driver was on one hand a more purpose-driven style tilting (description on the cashflow needs, principles and demographic constraints above) and on the other hand a better ability to engage and vote on the companies in an informed way with our limited resource pool. During 2019, we procured a proxy-voting IT system and in the beginning of 2020, we have placed our first votes. 

As a result of strategy development, the weighed average issuer carbon intensity in our Europe portfolio came down markedly and is now less than half of the underlying index (MSCI Europe IMI) and based on MSCI ESG data. Also in our domestic business, our weighed average issuer carbon intensity is some 15% below that of the benchmark (OMX Helsinki 25). 

In 2019, the personnel of the direct equity team was engaged in 1) Articulating the strategy 2) Equity selection for the new strategy and 3) Shifting the portfolio to reflect the new thinking. Whilst the strategy is a major improvement from ESG perspective (ability to engage increasing through concentration, carbon footprint markedly down, proxy voting processes now up and running), resources were focused on building the future rather than day-to-day business. This is reflected in LEA and LEI answers. We would like to emphasize however that the ESG improvement both from strategic and from process perspective is fundamental. We hope that this is also reflrected in PRI assessment. For us, this would be a signal that PRI values long-term strategic development and understands the consequent need for resource allocation. 

ESG factors are integrated in our equity portfolio management and investment process. We integrated ESG factors in our fundamental economy, industry and company analysis (themes, megatrends, resources, legislation, regulation, risks etc). According to our investment philosophy, stocks are selected based on several quality criterion which includes ESG factors.  Furthermore, we use screening and research by external service providers to complement our own resources.

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

In the active equity portfolios, the ESG factors are integrated in the stock selection process. Twice a year the portfolios are screened for new reported ESG violations or controversies. Controversial weapons are excluded from our investments.


LEI 02. Type of ESG information used in investment decision (Private)


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


(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 portfolios are screened bi-yearly using an external service provider

Screened by

Description

The portfolios are screened twice a year by the external service provider based on their own classification and recommendations system.

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

According to our principles of responsible investments we monitor and analyse complience with international conventions among investee. The external service provider has establised the criterion for the classification of violations and the recommendations are based on these criterion. The review of criterion as well as research on companies, sectors and countries is a continous process. The screenings of the portfolios are run twice a year.


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.

05.3. Indicate how frequently third party ESG ratings are updated for screening purposes.

05.5. Additional information. [Optional]

The ESG ratings of an external service provider are available all the time for the portfolio managers through Factset. In addition, the ESG team provides an aggregated report of the portfolios 4 times a year. Before taking a company in the portfolio, the portfolio managers conduct a standard-form research, focusing on four different strategic fields, in addition to valuation.This question-setting leads several ESG-questions as well. Specifically, a long strategic timeframes ensure that the "residual" equity claimant of cashflows is more likely interested in externalities as well.


LEI 06. Processes to ensure fund criteria are not breached (Private)


(B) Implementation: Thematic

LEI 07. Types of sustainability thematic funds/mandates

07.1. Indicate the type of sustainability thematic funds or mandates your organisation manages.

07.2. Describe your organisation’s processes relating to sustainability themed funds. [Optional]

As desctibed above (LEI 01), when we are targeting stable cashflows (starting from the purpose of the fund), we end up in a "quality" portfolio style-wise, This leads to e.g. a carbon footprint, which is less than half of the benchmark. Also other ESG metrics (as measured by our service provider) are higher than that of the index. From the metrics, one could make the conclusion that the fund is environmentally themed.  


(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]

Analysis of ESG issues are integrated in all internally, actively managed listed equity investments. Look at the answers above on 1) IT infrastrucure and 2) proprietary reporting framework when aiming to include a company to the portfolio and 3) our framework for company meetings / engagements. 


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.

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.

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

09.6. Additional information. [Optional]

ESG information both on a company level and on portfolio leven is availablle to portfolio managers. All company reports and engagement reports are centrally available (look at the description above),


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

10.6. Additional information. [OPTIONAL]

In our revised Europe strategy, we are using a proprietary framework to assess strategy, industry positioning, management quality and capital allocation. Our framework is a derivative of academic strategy literature and similar to all companies. 


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