In March DNB Asset Management published its 9th annual report on responsible investments. The 2020 report highlights a remarkable year in the financial markets which showed a mixed development with the COVID-19 pandemic looming as the key issue throughout the year. 2020 was also the year that responsible and sustainable investments truly became mainstream in the financial markets.
In 2020 the focus on Environmental, Social and Governance (ESG) issues, and particularly “green” technology/new energy, was evident in both fund flow and equity performance. Besides, COVID-19 seems to have accelerated existing ESG trends, such as increased focus on human rights as well as issues in emerging markets supply chains. Climate change has remained high on our agenda and so has the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations. It was good to see that the upcoming themes already was well reflected in our ongoing thematic focus areas.
In the annual report, we show our work within all our four pillars of responsible and sustainable investments: Standard setting, active ownership (through voting and dialogues), exclusions & risk management, and integrating material ESG risks and opportunities into investment processes and decisions.
Our standard setting work is important for defining clear expectations for sustainable corporate strategy and behaviour, and our series of expectations documents are often the starting point for our dialogues with companies. In 2020, DNB AM developed and published two new expectations documents. “Sustainable Oceans” mainly relates to salt water and ocean issues, while “Water” focuses on fresh water and land-based issues.
Active ownership encompasses both dialogues and voting and must be seen dependent upon each other. To leverage our engagements DNB AM often collaborates with other investors. In total, 229 reactive and proactive dialogues were conducted in 2020. We define goals and milestones for each engagement, and measure progress in terms of milestone development towards the final goal. In total, our engagements showed a progress of 168 milestones during 2020.
The coronavirus pandemic has catalysed an increased focus on social issues.
During 2020 we further increased our voting efforts, voting at 248 meetings on behalf of our clients. We also evaluate and vote on shareholder proposals related to ESG issues. Climate-related issues have remained at the centre of focus of these proposals, but the coronavirus pandemic has catalysed an increased focus on social issues. We voted at 30 meetings with shareholder resolutions on the agenda.
Exclusions and screening of our investment universe and portfolios on ESG criteria are important tools in our risk management work. When active ownership does not lead to an acceptable solution, the company will be excluded from further investment until it has implemented adequate measures to remedy the situation. We screen all funds managed by DNB AM and new companies before including them into the investment universe or portfolios.
The last pillar, ESG integration, centres on the systematic integration of ESG factors into the Portfolio Managers’ financial models and investment decisions - independent of whether a fund is labelled an ESG product or not. In 2020 we completed our ESG integration project for Norwegian fixed income portfolios. This project has covered bond issuers within the Norwegian banking, utilities, and real estate sectors. Through this we seek to better understand material ESG risks and opportunities that may impact credit assessments and investment decisions.
Looking forward, DNB AM’s broad ESG focus will continue. Environmental issues (such as climate change and loss of biodiversity) will remain at the forefront, but a range of social and governance issues also need to be tackled. In addition, we believe that the UN SDGs represent an important framework both for active ownership engagement with companies/issuers and as for thematic investments. A key priority will be to stay ahead of the extensive EU initiatives and regulations on sustainable finance, and important elements in 2021 will be the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy.
Disclaimer: The information in this document is not binding. Statements in this document should not be understood as an offer, recommendation or solicitation to invest in or sell UCITS funds, hedge funds, securities or other products offered by DNB Asset Management or any other company within DNB Group or any other financial institution.
All information reflects the current assessment of DNB Asset Management, which is subject to change without notice. DNB Asset Management does not guarantee the accuracy and completeness of the information. This information does not take into account the individual investment objectives, personal financial situation or specific requirements of an investor. DNB Asset Management does not accept any responsibility for losses incurred on investments made on the basis of this information. Our general terms and conditions can be found on our website www.dnbam.com.