Norwegian AM Answers Client Demand on Climate

    Stockholm (NordSIP) – Taking advantage of a recent visit to Stockholm, from the firm’s headquarters in Oslo, DNB’s ESG specialists sat down with NordSIP to talk about how they integrate ESG in the asset management process. Karl Høgtun, Senior Analyst and Laura McTavish, Analyst, accompanied Janicke Scheele who heads the department since late 2015. Together they shared how sustainable investing has evolved beyond exclusions and how clients are focusing increasingly on climate change.

    “We are always in close contact with the fund management team,” starts Scheele. “We also have people with investment experience within our team.” The four members of the Responsible Investment team work alongside the 28 equity managers, 18 bond managers, five private equity specialists, as well as a handful of experts focusing on tactical allocation and private debt, as well as four fund selectors.

    Responsible Investment has been on the agenda at DNB Asset Management since 1998, and the firm became a signatory of the UN PRI at the onset, in 2006. Like for most of its peers, the work consisted mainly in exclusions at the beginning, but it has since evolved along a steep learning curve. “Today exclusions are still important. However active ownership and ESG integration is becoming increasingly important,” says Scheele. “We have our own Group Standard for Responsible Investments that is in line with the Norwegian oil fund but goes a little further, and sometimes we are stricter, particularly regarding controversial weapons. However, we believe that responsible investing goes beyond screening. In our framework, exclusions are part of risk management, which is just one of the four pillars that we consider, which also includes standard setting, active ownership, and ESG integration.”

    DNB Asset Management puts a lot of emphasis on active ownership and tries to find investor collaborations whenever it makes sense. “In Norway, we can often engage with local corporations directly, but when we address global companies, we can also get together with PRI working groups to increase our influence. We have recently participated in coordinated actions on methane, soy, palm oil, and cattle. We also take part in Climate Action 100+, which seems to have reached a good level of traction. We were pleased to see for example in Shell’s recent press release where they announced that at their 2020 AGM, the shareholders will have to vote on incentive plans for management, including KPIs related to climate targets. This is the first time we carbon targets so closely linked to management compensation.”

    Every year, the team focuses on thematic engagement. In 2018, corruption, methane, emerging markets supply chain, tax, deforestation and land use are in the limelight. “For example, some companies do not pay any tax at all, and we believe that it is simply not sustainable,” explains Høgtun. “We expect a change in tax regulations to mitigate this shortcoming. We believe that in the long run, taxes should be collected where value is created, even when it is not always easy to measure. We recommend avoiding companies with aggressive tax schemes.”

    The RI team also works closely with the external management selection team. “The funds that we select should have a sound approach to ESG,” Scheele says. “They don’t have to have the exact same exclusion list as we do, except controversial weapons, which we don’t compromise on. Some of our external managers adapt our exclusion lists and we aim at influencing the managers’ policies after meeting with them. Recently, one of our external managers agreed to sell off their holdings in coal, and we were particularly glad about that move.”

    McTavish has recently joined the team after having worked for the ESG data provider and consultancy, Trucost, where she focused on carbon footprinting and water risk management. “Today, clients demand more from us, and we brought in Laura to help in the work we do regarding the climate and the environment, including scenario analysis,” Scheele explains. “Climate has become an important focus area for clients, and we need to understand the financial effects of climate challenges in more detail. We need to integrate better and more complete ESG data into our systems so that these can be used as an input to Portfolio Managers’ investment decision making processes,” adds McTavish. “The recommendations issued by the Task Force for Climate-related Financial Disclosures (TDCF) are important for all companies we invest in, and not the least for our own reporting. We are part of a pilot project run by the UNEP Finance Initiative (FI) with 19 other international investors, where we stress test transition and physical risks and opportunities under different climate scenarios. We are discussing how this should be integrated into reporting, and we will be testing an end tool which has been developed. We are really excited to be pioneers in this area, as we believe that measuring these risks and opportunities is where accountability starts.”

    Picture from DNB AM

    Aline Reichenberg Gustafsson, CFA
    Aline Reichenberg Gustafsson, CFA
    Aline Reichenberg Gustafsson, CFA is Editor-in-Chief for NordSIP and Managing Director for Big Green Tree Media. She has 18 years of experience in the asset management industry in Stockholm, London and Geneva, including as a long/short equity hedge fund portfolio manager, and buy-side analyst, but also as CFO and COO in several asset management firms. Aline holds an MBA from Harvard Business School and a License in Economic Sciences from the University of Geneva.

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