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Laura Natumi McTavish

Laura is an Analyst within the Team of Responsible Investments (RI), where topic of interest includes researching and analyzing companies and portfolios to identify material Environmental, Social and Governance (ESG) risks and opportunities. Companies ESG practices are then followed up through engaging with companies, both directly and through investor initiatives. The RI team works closely with the Portfolio Managers across the funds.

Laura McTavish joined us in 2018. Previously, Laura spent just short of 2 years with Trucost (part of S&P Global) as a research analyst, conducting portfolio carbon footprinting and bespoke project work for financial institutions.

Laura holds an MSc in Carbon Finance from the University of Edinburgh and a BA (Hons) in Business with Economics from Glasgow Caledonian University.


ESG can impact creditworthiness and credit spreads

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.

DNB AM’s Head of Fixed Income, Svein Aage Aanes, is clear:

- We firmly believe that companies’ attitudes to and work with material ESG factors will be of crucial importance for competitiveness, earnings and creditworthiness in coming years. We have therefore seen a strong need to gain a more complete overview of the management of these risk factors within the companies that we lend money to.

Mind the data gap

Large issuers typically have substantial resources available to deliver comprehensive reporting, including sustainability reporting. These companies are often covered by third-party data providers who create ESG scores. However, as a major player in the Norwegian fixed income market, we also lend money to small and medium-sized companies. These are often not covered by third-party data providers, and we have hence not had access to assessments of their management of material ESG risks and opportunities previously.

We have seen a need to increase the coverage of ESG data and analysis for these issuers. By building on materiality assessments from sources such as the Sustainability Accounting Standards Board (SASB), discussions with industry experts and selected companies, 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. The ESG scores can be viewed at an aggregate company level, or can be disaggregated and broken down into sub-areas within ESG. This enables portfolio managers to deep-dive into any identified ESG weaknesses and risks. The results of this work are for internal use only.

Svein Aage Aanes says:

- This is an important tool for fixed income portfolio managers, as it provides an internal quantitative assessment of bond issuers’ ESG risks. These assessments will be integrated into our portfolio management systems and considered in overall company credit risk assessments. We can now attribute weight to how issuers manage material ESG risks, and compare companies within the same sector, when we allocate capital between different bond issuers. For issuers that are determined to have weak credit profiles we will either choose not to invest or demand a high risk premium. Now, issuers with weak ESG profiles will be treated in the same way. The increased ESG data and insight we now have is also a good starting point for further dialogue within our regular meetings with almost all companies that we lend money to in the Norwegian fixed income market.

Increasing reporting requirements

Our clients demand increased ESG integration on the fixed income side and, in the future, investors face new reporting requirements from the EU. In order to deliver on this, we must turn to issuers to supply these data to us. Through this, we gain further insight and data on how bond issuers manage material ESG risks and opportunities.

Issuers also face increasing reporting requirements. Proposed revisions to the Non-Financial Reporting Directive were out for consultation earlier this year. We submitted comments to these through the Norwegian Mutual Fund Association (VFF). It has been proposed to change the reporting threshold from companies with more than 500 employees to companies with more than 250 employees. It has also been proposed that companies with less than 250 employees also report, but to a less detailed framework. Essentially, our interests are aligned with bond issuers’ – we need better information and data, and issuers need to improve their internal processes and increase transparency in this area.

We have influential power as a major player in the market

Due to our significant position within the Norwegian fixed income market, we believe that this work can give us better insight into issuers’ management of ESG risks and opportunities, whilst simultaneously contributing to standard setting towards issuers that are in the early stages of their sustainability journey.

Though bondholders cannot vote at general meetings, we may exercise active ownership, due to the fact that we are a major player in the Norwegian Market. Moving forward, we will engage with issuers and encourage increased transparency. The goal is to influence companies in a positive direction and measure progress over time.

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