Sustainable and Responsible Investment at Alfred Berg
The Alfred Berg Sustainable and Responsible Investment (SRI) toolbox
In a quickly moving Sustainable and Responsible Investment environment, we see the need for defining the different topics to ensure that we think of the same elements in our discussions.
In the above illustration:
The lower three boxes cover the basic Sustainable and Responsible Investment practices and actions that most asset managers and investors pursue.
The two boxes in the middle are practises by those who are more advanced in how they approach Sustainable and Responsible Investment .
The top box, rather than being a third level, designates a thematic investment approach: identifying and investing in those companies around the world which are driving sustainable change, for example, in the fields of alternative energy or water purification technology.
The different Alfred Berg funds have different approaches with regards to SRI. Would you like to know how and to what extent each of our funds works with the components in our Sustainable and Responsible Investment toolbox? Please contact us.
In the following, we give you more details of each component in the Alfred Berg Sustainable and Responsible Investment toolbox.
1) Norm based screening
We screen our portfolios for controversies
Norms-based screening is about compliance with international conventions and norms and represents the most basic level of Sustainable and Responsible Investment. Whenever we find companies whose activities involve severe breaches of fundamental environmental, social and ethical principles, as defined by the UN Global Compact, we exclude them from investment. Few Nordic companies are excluded since businesses in the region generally have high environmental, social and governance (ESG) standards.
BNP Paribas Asset Management has a centrally agreed process for UN Global Compact assessment and sector policy screening. Alfred Berg has external support from Sustainalytics, MSCI and ISS-Ethics in this area.
In Norway, the Alfred Berg Ethical Committee advises on specific issues or companies when they are raised – for example, after examining questions concerning a nuclear plant operator, we decided not to invest in the company. Other areas examined recently have included asbestos, dirty coal and palm oil. In Norway, this screening process can kick-start a process of engagement with the company involved to address the issues.
2) Proxy voting
We vote in line with our governance policy
We pursue our responsibilities as shareholders by applying BNP Paribas Asset Management’s governance policy, while adapting it where necessary to local country laws. We vote at all annual general meetings of shareholders in the Nordic countries and Russia. Some AGM agendas can result in engagement with the companies. [Please note: Proxy voting at the AGMs of companies owned by Parvest funds is handled by Parvest.]
3) Sector Exclusions
We do not invest in companies involved with sensitive or harmful products
Examples of companies in which we will not invest include those involved in the production or sale of weapons, pornography, alcohol, tobacco, gambling and fossil fuels. Please note there are local variations in how the sector exclusion screens are applied, reflecting local market demands and practices.
- ALL ACTIVE FUNDS: Based on MSCI BISR – Exclude Controversial Weapons, Alcohol, Tobacco, Pornography
- External support by MSCI for Norwegian funds
- These exclusions sometimes initiate Engagement
- SUSTAINABLE INVESTMENT THEME EQUITY FUND + THREE SUSTAINABLE FIXED INCOME FUNDS: exclude weapons, alcohol, tobacco, gambling, pornography, fossil fuels
- External support by ISS-Ethix for Swedish funds.
We engage constructively with companies to encourage them to improve
Which companies we choose to engage with directly is based on how severely unacceptable we believe their practices to be and where we can make the most effective impact.
Such decisions are made by our equity portfolio managers since they are the ones that have the right to vote proxies, together with our SRI/ESG specialist.
Norway – Portfolio managers will engage with companies when issues are triggered in the screening processes or voting processes as described above. They may also choose to engage with companies when other ESG issues come up. One example of how engagement can bring clarity followed the assertion that a salmon producer in Chile had been firing pregnant women. This turned out to be untrue after we spoke with the company directly.
In 2016, Alfred Berg started a closer dialogue with all Russian holdings on ESG issues and performance.
Next planned step: Nordic Small Cap and Nordic Listed Real Estate in 2017.
We cooperate closely with the BNP Paribas Asset Management ESG team in Paris when relevant (e.g. on Russia).
5) ESG Integration (Forward looking)
We analyse how companies manage ESG issues in their business
Always with a forward-looking perspective, we aim to integrate ESG within our investment process. This is about identifying the material ESG aspects, risks and opportunities that could affect their long-term growth. The central question is: how is the company managing these risks and opportunities?
We firmly regard it as one of our principal Sustainable and Responsible Investment missions to develop our expertise and our process to efficiently assimilate ESG within our analysis and investment decisions.
There are two ways in which we do this:
- Formalised (EUROSIF) – Stating in written how ESG will impact the investments (example: avoid corporate bonds with unmet and/or unacceptable ESG risks)
- Non-formalised (Market practice – Mindset) – The portfolio managers take ESG into account and judge the potential risks
- Norway do this – some examples of excluded companies:
- in international oil exploration (low transparency risk)
- in conventional weapon production (reputational risk)
- a company letting a CEO under investigation for insider trading remain in place (governance risk)
- In Norway, we sell investments in companies that are downgraded to ‘Red’ in the MSCI Controversy research
- Norway do this – some examples of excluded companies:
Excluding a company (that was not screened out in norm, sector policies, sectors as described above) is a function of the opportunity, the estimated ESG risk, the estimated non-ESG risk and valuation.
6) Sustainable Investment Themes
We look for winners in sustainable development
We identify companies where sustainable development (e.g. climate transition) truly drives the growth of its business. We see this as increasingly relevant in light of the 17 UN Sustainable Development Goals that look set to shape the global policy agenda over the next few decades.
Our systematic thematic approach feeds into our non-formalised ESG policy integration – always with a keen focus on opportunities!
Investments in funds are always related to risk. Past performance is no guarantee of future results. Performances are calculated net of fees. Investments in funds are subject to market fluctuation and risks inherent in investing in securities. The value of investments and the revenue they generate can increase or decrease and it is possible that investors will not recover their initial investment.