All active funds managed by DNB AM utilize integration of ESG risks and opportunities, although the process may differ between teams with different mandates. The Responsible Investment team works closely with all portfolio managers and key portfolio management teams are supported by a dedicated analyst from the responsible investment team for continuous oversight and support.
The Responsible Investment team screen companies prior to inclusion into our investment universe, quarterly for benchmark rebalancing, and on a weekly and daily basis for changes to ESG-ratings and factors. The purpose is to uncover potential product violations, breaches of international norms and standards and/or material ESG risks and opportunities. The results are discussed with relevant portfolio management teams.
For some of our sustainability themed funds and for funds where the portfolio management teams can benefit from a more thorough screening of specific sustainability factors and metrics, a quarterly or bi-annual report is developed by the supporting analyst from the responsible investment team. The results are discussed with the portfolio management teams and any follow up are decided in collaboration.
ESG data is, in addition to being available through external data sources, incorporated into DNB AM’s portfolio management and information systems and is available to all investment professionals. Portfolio managers use this data in their company risk assessments, financial modelling, and investment decision making. The availability of this data in the front office system also often acts a flag for the portfolio managers, triggering further investigation and discussion with the Responsible Investment team regarding potential risks and opportunities and the financial effect from this. These discussions may trigger actions such as further investigation, engagement in dialogue with the company, or impact on the investment decision.
Data available to all investment professionals in DNB AM through external data sources and internal information systems include:
- MSCI ESG Research: ESG reports, scores, business involvement screening research, carbon metrics and controversies, climate value at risk, Principal Adverse Impact (PAI) indicators and other.
- S&P Global Trucost: Carbon and environmental data and risk analysis, including complementary data points for do-no-significant-harm assessments (DNSH) and SDG alignment.
- Sustainalytics: UN Global Compact compliance and controversy assessments, norms-based screening and engagement services.
- Bloomberg: EU Taxonomy eligibility and alignment data, as well as screening related to government sanctions
- SASB Framework and database, sell-side research, media/news, industry reports, non-governmental organizations (NGO) reports and meetings.
In addition to this, the Responsible Investment team has developed frameworks for assessing and scoring companies not scored by external service providers, as well as frameworks for assessing company performance across specific focus areas. One example is the questionnaire for assessing companies’ climate targets. This questionnaire is filled out by the Responsible Investment team based on available information and dialogues with the company in question for companies that contribute to a substantial part of DNB AMs investment portfolio’s greenhouse gas emissions. The framework includes assessments on current and forward-looking alignment criteria with net zero emissions, such as the company’s targets and disclosures, decarbonization strategy and climate governance.
The portfolio management teams use available data as well as feedback from the Responsible Investment team in their company risk assessments, financial modelling, and investment decision making. This information can affect the selection of companies, portfolio construction and weighting decisions. The DNB Instruction for Responsible Investment is the starting point for our portfolio management activities affecting the investment universe for DNB.
When evaluating which company to invest in, the portfolio managers evaluate traditional factors such as financial statements and projections, business model, peer group analysis, competitive positioning, management, industry trends etc. In addition, the team conducts a sustainability assessment by evaluating several E, S and G factors and how these presents potentially risks and opportunities for the particular company. The sustainability assessment is based on a double materiality assessment and includes factors such as the relevant PAI-indicators in line with the fund’s SFDR requirements, CO2 intensity/emissions of the company, ESG-scores from data providers and sell-side research.
The goal of the sustainability assessment is to estimate potential financial impact this may have on the company which is being analyzed. For example, we might use a higher discount rate for a company’s cash flow where we see an ESG-related risk factor not being fully appreciated by the market and/or traditional financial analysis. Each portfolio management team is supported by the Responsible Investment team who assists in the assessment of sustainability factors as well as give input on how this might have financial impact.
