ESG integration in fixed income: Norwegian utilities
Over the past year, DNB Asset Management’s (DNB AM) ESG team has worked closely with the fixed income team to further improve processes and work towards integrating Environmental, Social and Governance (ESG) factors into credit analysis and investment decision making in a more systematic way.
We have created a framework for assessing material ESG risks and opportunities per sector. Based on this framework, we have developed and sent out sector-specific questionnaires that account for distinct conditions within the Norwegian market. We have scored bond issuers on the quality and transparency of their ESG work within the bank, utilities and real estate sectors based on the responses we have received. We have now had initial follow-up dialogues with some issuers where we have outlined our findings and encouraged increased transparency. Our goal is to influence the companies in a positive direction.
Over the past year, DNB Asset Management’s (DNB AM) ESG team has worked closely with the fixed income team to further improve processes and work towards integrating Environmental, Social and Governance (ESG) factors into credit analysis and investment decision making in a more systematic way.
We have created a framework for assessing material ESG risks and opportunities per sector. Based on this framework, we have developed and sent out sector-specific questionnaires that account for distinct conditions within the Norwegian market. We have scored bond issuers on the quality and transparency of their ESG work within the bank, utilities and real estate sectors based on the responses we have received. We have now had initial follow-up dialogues with some issuers where we have outlined our findings and encouraged increased transparency. Our goal is to influence the companies in a positive direction.
Strong overall performance
Top-level results show that almost 60% of issuers scored receive a score in the average range (yellow). Approximately 26% of those that responded to our request receive a high score (green). Only three companies did not respond to our request.
Figure 1.
Unlike the banks there is no general observation that utilities are signalling a significant ramping up of sustainability efforts moving forward, though some specific companies have plans for this.
Good performance on environment
Figure 2.
Norwegian utilities produce almost exclusively renewable energy (hydropower in particular). As a result, many environmental aspects associated with this are heavily regulated in Norway and most companies receive an above average to high score. However, a general takeaway is that several of the companies analysed would benefit from greater transparency around their climate and environmental efforts, and some have signalled that there are plans for this moving forward. Encouraged measures involve aligning their reporting to the recommendations from the Task Force on Climate-related Financial Disclosures.
