Stockholm (NordSIP) – Danish philanthropic organisation Realdania is looking to expand their mission-related investments to over DKK 1 billion by 2026. The team has been working tirelessly to identify the right partners to help them with this ambitious target. After a thorough screening, facilitated by Global Fund Search (GFS) and an extensive due diligence process, in December 2021 Realdania awarded two mission-related mandates. The asset owner chose Ninety One, a long-term, active, global investment management company formerly known as Investec Asset Management, to help them manage a listed equity impact portfolio in the Ninety One Global Environment Strategy. The passive ESG equity mandate, meanwhile, was awarded to NN Investment Partners (NN IP) and their Enhanced Sustainability Strategy, as previously reported.
To learn more about the search process and the reasons why Realdania and Ninety One decided to partner up, NordSIP reached out to the Danish asset owner’s CIO, Kenneth Lillelund Winther, as well as to Ninety One’s Deirdre Cooper, Co-Head of Thematic Equities and Co-Portfolio Manager of the Global Environment Strategy. “We were fortunate, as there was a true alignment of investment objectives both from an investment return perspective and from an impact point of view,” shares Cooper. “Realdania gave us the opportunity to explain our approach in detail and to showcase both the firm as a whole and the breadth of knowledge within our Thematic Equities team,” she adds.
Finding the right match
“When it comes to mission-related investments, we put extra emphasis on making sure the investment has a large footprint on the six sustainable development goals (SDGs) most aligned with our mission or our philanthropic goals[1],” explains Winther. “This particular asset class, listed impact equity, was new for Realdania, and we were fully aware that we did not have much knowledge about the strategies available. We started out hoping to find exact matches to our philanthropic goals but soon realised that this would be difficult to achieve. The investment universe would simply be too narrow, and no managers had proven skills in the very specific SDG’s that we focus on. We chose, therefore, to focus on some of our broader goals, related to climate change, where existing track records could be obtained,” he says. “We chose Ninety One because we believe their strategy will deliver attractive returns with high impact. At the same time, their strategy and portfolio have little overlap to our existing equity mandates,” concludes Winther.
Realdania was clear from the very beginning about what they were looking for, a global equity manager with a strong focus on impact investing. They were also open about wanting to pursue a dual target: to invest in companies that generate an attractive long-term return as well as support their philanthropic mission. Luckily, Ninety One had just the right strategy in mind to meet both of these targets. “Our Global Environment Strategy, which employs a bespoke bottom-up benchmark-agnostic investment process designed for a diverse universe of global equities, specifically selects companies that enable the transition to a low-carbon world. This way it contributes to both of Realdania’s goals; to outperform the index over a full market cycle and to have a quantifiable carbon-saving impact,” says Cooper.
Engagement matters
“Engagement and stewardship are crucial for all Realdania equity investments, not just impact investments,” says Winther. “We believe an active ownership approach has the potential to increase returns and reduce risks. By engaging we aim to improve our impact footprint even more. Ninety One has demonstrated that both skills and resources are allocated to the ongoing dialogue with companies to improve their commitment to sustainability. They engage actively with portfolio companies to measure and improve reporting on CO2emissions. The asset manager can also provide an extensive and detailed impact reporting and a clear and well-defined ESG policy,” he adds.
At Ninety One, the investment process reflects a core belief in sustainable long-term investing and active engagement, according to Cooper. “We provide transparency on positions and company engagement through our annual Global Environment Impact Report. Through the report we measure the success of company engagements which is ultimately assessed by measuring the progress towards the identified engagement goals,” she says.
Gauging the impact
Measuring impact can be onerous in general, not only when it comes to engagement. Assessing whether portfolio holdings are genuinely contributing to decarbonisation, for instance, is a true challenge. With regards to the measurement conundrum Cooper states, “we use the concept of ‘carbon avoided’ (CA) that examines whether a company’s products or services are better in terms of their carbon footprint than the alternative.”
“CA may not be as well known a concept as Scope 1, 2 & 3 emissions, but following engagements with our holdings, many have recognised the importance of quantifying the positive impact of their products or services” continues Cooper. “We have worked with CDP to make the initial estimates, using global averages as a baseline. Ideally, over time all our companies will report CA as an integral part of their financial reporting. Just like financial data, CA numbers can be volatile over time, and we need to monitor not just the data but the narrative behind it,” she adds.
Affecting real change
For Winther, proper impact measurement is also a good way of avoiding ‘impact washing’. “We put a lot of focus on the asset manager’s impact target in the short- and long-term perspective,” he says. “We do not want to have a low CO2 emission simply by being overweighted Tech and Health Care. We’d rather invest in companies involved in the built environment and Industrials, i.e., in companies whose products or services are part of the transition to a less carbon-intensive world,” explains Winther. The way Ninety One engages with portfolio companies to measure and improve reporting on CO2 emissions is, therefore, highly appreciated at Realdania.
“Climate change is the defining issue of our times, and tackling this enormous challenge requires aiming for real-economy impact as opposed to portfolio purity,” reflects Cooper. “We are seeing a clear divergence of sustainability approaches developing amongst investors. This demands even more conviction but also flexibility from us as asset managers. We believe it is important to ensure that the transition pathway is just and inclusive of emerging markets, too,” she adds.
“This search gave us good insight into the available strategies within impact investing, and we will keep monitoring these as they mature,” says Winther. He mentions also that Realdania is continuously updating the portfolio- and manager composition across asset classes and will conduct more searches in 2022, which will be open for all global participants. “By using Global Fund Search we are sure a huge part of the universe is screened,” concludes Winther.
Image courtesy of Realdania (Nikolai Linares) / Ninety One / edited by NordSIP
[1] SDG 3: Ensure healthy lives and promote well-being for all at all ages.
SDG 7: Ensure access to affordable, reliable, sustainable, and modern energy for all.
SDG 11: Make cities and human settlements inclusive, safe, resilient, and sustainable.
SDG 12: Ensure sustainable consumption and production patterns.
SDG13: Take urgent action to combat climate change and its impacts by regulating emissions and promoting developments in renewable energy.
SDG 17: Strengthen the means of implementation and revitalize the global partnership for sustainable development.
