As such, investors that aim to deliver long-term returns for their shareholders cannot ignore sustainability, as environmental, economic, governance and social factors may impact company profitability.
The United Nations Brundtland Commission defines sustainability as “meeting the needs of the present without compromising the ability of future generations to meet their own needs”.
Many use sustainability and climate change interchangeably. Though it is true that climate change is a vital part of sustainability, sustainability encompasses more than this and cannot be exclusively defined from an environmental perspective. This is why we consider Environmental, Social and Governance (ESG) factors in our investments.
How can ESG support financial returns?
ESG assessments are an integral part of investment decisions in DNB Asset Management. Our current holdings comprise more than 2,500 companies and our Standard for Responsible Investments is maintained across all of these investments.
Sustainability is high on the DNB Group’s agenda.
Sustainability is also high on the DNB Group’s agenda. As an asset manager, our job is to generate returns for our clients. We do this whilst also ensuring that investments are sustainable and responsible. We believe that these are not mutually exclusive, as we believe that sustainable companies will perform better financially in the long term.
We are seeing increasing demand for responsible and sustainable products from both the retail and institutional segments. We believe that everyone that invests in our funds should be reassured that we consider both financial and ESG risks and opportunities in all that we do.
How do we integrate ESG into investment decision making?
We integrate ESG risks and opportunities into valuations, investment decision making and portfolio construction. When we analyse the ESG risks and opportunities associated with companies, we assess both how the company may impact environmental and social factors, and also how the company is impacted financially by environmental, social and governance factors.
Some of the factors we consider in our analysis are the following:
There are dilemmas
In our assessments of how companies are exposed to and manage ESG risks and opportunities, there are often several factors at play at the same time. This means that we must consider how these factors interact with each other, always weighing up potential negatives versus positive impacts.
Aquaculture is considered to be more sustainable than meat in terms of carbon intensity. In our engagement with aquaculture companies, an indirect issue is the link to deforestation of rainforests. It is well known that rainforests are deforested to grow soybeans which are used in animal feed, including fish feed. This is why we work to prevent deforestation associated with the production of soft-commodities by working for improved transparency of disclosures, traceability throughout supply chains, and obtaining full commitments to no deforestation. For aquaculture companies, seeking more sustainable sources of protein for the long-term is also an important focus.
GREY ZONE: Electric cars can contribute to lowering global carbon emissions, but at the same time, we recognise that there are high emissions associated with the manufacturing of these cars. (Credit: NTB Shutterstock)
Automobiles manufacturers have an opportunity to contribute to lowering global carbon emissions through electric vehicles. At the same time, we recognise that there are high emissions associated with the manufacturing of these cars. Moreover, the lithium ion batteries used in these vehicles are associated with issues concerning waste disposal and labour rights through the extraction of cobalt. Product safety is also important – remember Volkswagens’ emissions scandal?
Another relevant issue moving forward is ethical dilemmas associated with self-driving cars
Our ESG analysis provides portfolio managers with a better information base
By analysing risks and opportunities associated with a range of E, S and G factors, we provide portfolio managers with additional information to support their investment decision making process. Our primary goal is to use this information to reduce risk and improve risk-adjusted returns. We may also uncover new growth markets and innovative companies that provide sustainable solutions. There are also factors we assess that are ethically motivated.
Disclaimer: Nothing contained on this website constitutes investment advice, or other advice, nor is anything on this website a recommendation to invest in our Funds, any security, or any other instrument. The funds mentioned may not be available in the markets you represent. The information on this blog is posted solely on the basis of sharing insight to make our readers capable of making their own investment decisions.