Nordea AM: Climate investing opportunities

4 december 2018

Hilde Jenssen, portfolio specialist in the Fundamental Equities team at Nordea Asset Management (NAM), talks about her attitude towards responsible investing, what distinguishes NAM from other asset managers and introduces innovative ESG solutions. NAM’s Global Climate and Environment Fund is one of this solutions. Its investment universe is particularly interesting considering COP24, the UN climate conference currently taking place in Poland.

Before joining Nordea Asset Management, you worked for several other investment companies. In your opinion, what distinguishes the group from other asset managers?

Jenssen: I believe there are many elements of Nordea that we can be proud of. For me, our commitment to responsibility is at the top of the list. Responsible investment has been an integral part of Nordea’s DNA for many years. We have shown great dedication to encourage companies to implement more sustainable and climate-resilient business models. It was therefore only consistent that Nordea should become one of the early signatories of the United Nations’ Principles for Responsible Investment back in 2007. Our responsible investment (RI) framework – which includes active ownership, engagement, exclusions and a range of RI-enhanced products – supports our groupwide goal of delivering returns with responsibility.

Have you always held such a positive view of responsible investing?

Jenssen: To be honest, my attitude towards ESG has evolved over the years. Like many people, I was initially sceptical about the degree to which ESG considerations could add significant shareholder value. However, my view has changed. There is now overwhelming evidence suggesting that companies which are leaders in ESG deliver far superior results compared to those ignoring these issues. At Nordea, I see first-hand how taking a strong position on ESG issues can help to identify tomorrow’s winners, while avoiding companies on a downward path. It is good to see that an increasing number of mainstream investors are now embracing this thinking. That, in turn, is having a positive effect on corporate behaviour.

What is the role of Nordea’s Responsible Investment Team?

Jenssen: Our Responsible Investment Team follows an approach similar to that of a financial analyst. The team focusses on proprietary analysis and meets with companies to gain first-hand knowledge. The aim is to provide an extra layer of information on each company for our portfolio managers to consider. This enables a ‘positive selection’ process, if you will. Firstly, a company is assessed on whether it conducts business responsibly in relation to its stakeholders: employees, suppliers, customers, investors, the environment and society at large. Secondly, we assess whether a company’s products or services are well-positioned in relation to broader sustainability megatrends, such as climate change or changing demographics. Finally, the team assigns ratings to a company and determines whether there is a positive or negative trend. Each company is given an A, B or C rating. Our STARS funds – which are part of our RI-enhanced offering – cannot invest in any C-rated companies, for example.

You mentioned the STARS funds. What characterises these strategies?

Jenssen: As I said, we are convinced that considering ESG factors can help to mitigate risk and add long-term value. Our STARS strategies stand at the forefront of responsible investing and are the embodiment of true ESG integration. We fully integrate ESG factors into the investment process and use dialogue and engagement to make a real impact. Our aim is not just to beat a benchmark, as any active fund does, but also to shape tomorrow’s world. In addition, we believe it is important to keep our clients informed of the engagement activities we undertake, so we make this information available in detailed quarterly reports. The documents also highlight how our activities relate to the UN Sustainable Development Goals in areas such as human rights and climate change.

Can you give us an example of how the RI team engages with companies for the STARS funds?

Jenssen: We have been working on ESG-related topics with hundreds of companies from all over the globe for many years. A good example is the Indian real estate company Phoenix Mills. The company owns, manages and develops mixed-use properties – from shopping to residential and hospitality purposes. As a long-term shareholder through our Nordea 1 – Emerging Stars Equity Fund, we have been in regular contact with the company for years. Even though Phoenix Mills operates in a challenging sector and country, we started a dialogue on various topics to ensure the company was not deviating from the path of becoming a sustainable real estate developer. This engagement proved successful. We encouraged Phoenix Mills to be more transparent on sustainability issues by means of reporting. Our dialogue was also a major driver behind Phoenix Mills’ decision to begin publishing its code of conduct in 2016.

Your team also manages the Nordea 1 – Global Climate and Environment Fund. Can you tell us more about this fund?

Jenssen: Over a decade ago, Nordea developed a sustainability-themed strategy focusing on solutions addressing climate change and environmental protection. The Nordea 1 – Global Climate and Environment Fund seeks to identify businesses playing a positive role in confronting one of the greatest societal challenges of our day: the need to safeguard our environment and tackle climate change. While some people still associate investing in this space above all with the renewable energy sector, this significantly understates the opportunities available to capitalise on this vital long-term investment megatrend. Our portfolio managers focus on companies providing positive solutions in the areas of resource efficiency, environmental protection and, to a lesser extent, alternative energy.