Environmental, Social and Governance integration

How do we promote Environmental and Social characteristics (E&S)?

For E&S characteristics, we apply an outside-in ESG integration analysis which takes into consideration how companies are managing the effect of climate change, such as the effect it will have on a company’s business environment through physical and regulatory changes. This may include extreme weather events, natural catastrophes, failure of adaptation, supply chain disruptions, reputational risks, trade risks, liability risks as well as any social impact on companies. 85% of our flagship funds take this analysis into consideration.

Analysis

Within our Environmental and social characteristics, we also consider Sustainable investments

For sustainable investments we consider an inside-out analysis, focusing on the impact a company has on the climate. Observing companies who are managing their own emissions and impacts on climate change in a sustainable manner. Some of the ways that companies can impact the climate include reducing their greenhouse gas emissions, investing in renewable energy sources, adopting circular economy principles, engaging with stakeholders and policymakers, and disclosing their climate-related risks and opportunities. Companies who have set objectives on these environmental and social areas, whilst doing no significant harm and adhering to good governance practises are considered eligible according to our interpretation of sustainable investments.

"Our flagship funds are at least 85% aligned with environmental and social characteristics which contain a minimum of 20% sustainable investments"

These percentages represent our commitment across all our flagship funds and we strive to meet these commitment at all times, however they are subject to change depending on availability of sustainability related data and developments of the regulatory requirements.

We exclude or avoid transactions that are not aligned with environmental, social and ethical standards

We do not invest in instruments of companies that violate the UN Global Compact for three years running, involved in controversial weapons, companies that derive more than 10% of their revenue from thermal coal, and we aim to avoid companies that are involved in activities like tobacco, gambling, alcohol, adult entertainment or genetically modified organisms.

We are also stewards of your assets and actively engage with companies in our funds

We consider active ownership as our most important and powerful tool to promote environmental and social characteristics.

We engage investee companies collectively with other shareholders regarding subjects like climate change risk, sustainable reporting and strategy and corporate culture.

We try to influence companies to improve their social and environmental behaviour and use proxy voting to emphasize these topics. For more information see our 2022 Active ownership report.

We are data driven in our ESG integration analysis…

Before we invest in companies, we use 190 environmental and social data points for our analysis. Being driven by data and our proprietary materiality matrix, ensures the right data point is used for the right purpose. Being evidence-driven, provides a consistent view allowing for comparability.

We have observed that higher ESG ratings are generally positively correlated with valuation and profitability while negatively correlated with volatility. To learn more about why we believe ESG investing is better for the long-term investment outlook please see here.

We also use third party funds

We believe in open architecture, when we are not selecting individual stocks or bonds we may use third party funds and ETF’s in areas where we believe those funds offer the best investment opportunity.

These funds go through a rigorous due diligence process to determine their attractiveness with regard to sustainability, costs, risk and return. The sustainable due diligence is performed on top of the regular financial due diligence and requirements. With regard to the sustainability due diligence for funds and ETF’s we use a proprietary scoring methodology, see here.

These funds have their own methodology to determine whether an instrument has E&S characteristics and if within that it contains sustainable investments. Here we rely on their data analysis, which can be quantitative or qualitative. They also have their own exclusion policies.

Authors:

AJ Singh Head of ESG & Sustainable Investing
Bas Gradussen Sustainable Investment Strategist
Giang Vu Sustainable Investment Strategist
Martynas Rudavicius Sustainable Investment Strategist

Disclaimer

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Environmental, Social and Governance (ESG) integration

Aligned with Environmental & Social Characteristics