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Principal Adverse Impact Statement - Storebrand Asset Management
The following is the Principal Adverse Impact (PAI) Statement of Storebrand Asset Management AS (SAM) and its subsidiaries, SKAGEN Funds, Delphi Funds, SPP Fonder, and Cubera, collectively referred to as SAM Group. This statement is a requirement of the EU Sustainable Finance Disclosure Regulation.
When SAM assesses the principal adverse impacts on sustainability factors (PAI), SAM evaluates the assets managed at an entity level, with the exception of assets where data on PAIs are not available.
SAM continuously assesses any potential adverse environmental, social or governance impact from activities in investee companies. For companies with a heightened risk of potential adverse impact, our Risk & Active Ownership team will make an in-depth analysis of the issue and decide on any further action, such as engagement or recommendation for exclusion. More information on our engagement process is found in the SAM Sustainable Investments Policy or SKAGEN Sustainable Investment Policy.
Further integration and considerations of PAIs may take place at SAM's subsidiaries and specific funds.
This version of this document applies as of 30 June 2021. The statement will be revised prior to 1 January 2022, and thereafter, updated as needed.
1. Description of PAIs: Mandatory and Voluntary PAIs
SAM will gather data and monitor the principal adverse impact of all mandatory as well as 7 additional indicators. This list will be reviewed at least annually and updated accordingly when access and quality of data improves. SAM already uses environmental, social and governance data in a sustainability rating and for other screening and engagement purposes, but it will now also be used specifically for the screening of principal adverse sustainability impacts. As all economic activity has some form of impact, we will use this screening to further identify and manage sustainability risks from our investments.
List of PAI indicators:
- GHG emissions (Scope 1, 2, 3 and total)
- Carbon footprint
- GHG intensity of investee companies
- Exposure to companies active in the fossil fuel sector
- Share of non-renewable energy consumption and production
- Energy consumption intensity per high impact climate sector
- Activities negatively affecting biodiversity sensitive areas
- Emissions to water
- Hazardous waste ratio
- Violations of UN Global Compact principles and Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises
- Lack of processes and compliance mechanisms to monitor compliance with UN Global Compact principles and OECD Guidelines for Multinational Enterprises
- Unadjusted gender pay gap
- Board gender diversity
- Exposure to controversial weapons (antipersonnel mines, cluster munitions, chemical weapons and biological weapons)
- GHG Intensity
- Social violations for sovereigns
- Supplier Codes of Conduct
PAIs applicable for real estate investments:
- Exposure to fossil fuels through real estate assets
- Exposure to energy-inefficient real estate assets
- GHG emission generated by real estate assets
- Energy consumption intensity
- Waste Production (Share of real estate assets not equipped with facilities for waste sorting and not covered by a waste recovery or recycling contract)
3. Description of Policies to identify and prioritise adverse sustainability impacts:
3.1 Action taken - methodology
SAM has been working to reduce adverse impact in its portfolios since the turn of the century and it has identified the following as main adverse sustainability impact categories that apply to all equity and debt portfolios:
- Adverse impact affecting the environment and climate such as: severe environmental damage; Green House Gas emissions; biodiversity loss and deforestation
- Adverse impact affecting workers, communities, and society such as: violations of basic workers' rights; forced labour; gender/diversity discrimination or indigenous rights violations
- Adverse impact in connection with gross corruption and money laundering
- Adverse impact in connection with controversial weapons (landmines, cluster munitions and nuclear weapons)
- Adverse impact in connection with tobacco products
We have also identified some products as adverse impacts that we aim to avoid in all our funds such as coal or oil sands and others for some of our portfolios such as alcohol, gambling, and conventional weapons. These products are associated with significant risks and liabilities from a societal, environmental or health related harm. See the SAM Sustainable Investments Policy or SKAGEN Sustainable Investment Policy for more details.
SAM addresses these adverse impacts by using several combined strategies that involve:
- Screening and excluding companies that do not live up to Storebrand's (minimum) investments standards based on international norms and conventions and/or companies that are involved in the production of certain unsustainable products.
- Engaging with companies to discuss these adverse impacts with the aim to improve corporate behaviour and thus reduce the adverse impact.
- Integrating sustainability risk ratings in investment decisions to avoid or invest less in companies with high-risk sustainability ratings and prioritise or invest more in companies with low sustainability risk.
Although principal adverse impacts (PAIs) are already addressed and integrated in a general way by following the approach described above, SAM will be enhancing further integration for mitigation of PAIs, as outlined below.
For further information on SAM's exclusion policy, see the Storebrand Standard and Storebrand's exclusion list. Further information on our engagement process, results of work on active ownership and strategic thematic focus areas for engagement, please see the Storebrand Sustainable Investment Policy or SKAGEN Sustainable Investment Policy.
3.2 Policies on identification of PAIs
SAM has been identifying adverse impacts in its portfolios for over a decade, and thus there is an overlap between PAI indicators and our general work carried out to mitigate risk. For information on our work identifying ESG risk please see Storebrand's Sustainable Investments Policy, Climate Strategy, Deforestation Policy, work on Biodiversity and the Storebrand standard.
Regarding the identification of specific PAI indicators, SAM will be monitoring these PAI indicators including the selected Additional Indicators on an ongoing basis as data becomes available from data providers.
Our methodology is to identify PAI laggards (red), PAI intermediate performers (yellow) and PAI leaders (green) so that risk can be avoided, and more capital can be allocated to more sustainable companies and solution companies.
RED: Those companies identified as PAI laggards will be further analysed by the Risk and Active Ownership team and may result in exclusion depending on the risk and severity of the negative impact identified and the total cumulative negative impact identified across all PAI indicators.
YELLOW: PAI intermediate performers will also be further analysed with the aim of mitigating adverse impact through engagement. Please see 3.3 Addressing of PAIs and Mitigation
GREEN: In addition, the analysed PAI data will be further integrated in financial decisions with the aim of allocating more capital to PAI leaders, and thus lifting the sustainability value of our funds. Please see 3.3 Addressing PAIs and Mitigation
3.3 Addressing PAIs and mitigation
SAM addresses negative impact in its investment considerations by applying several methods ranging from ESG Integration, Exclusion, and Active Ownership. Please see Storebrand's Sustainable Investment Policy and the description of the policies above for more information on how SAM addresses adverse impact in general, which overlaps to an extent with PAI indicators.
SAM builds on this general approach to adverse impact mitigation by further focusing on addressing and mitigating adverse impacts as described in the PAI indicators.
As the quality of PAI indicators data improves and becomes available, SAM considers a range of methods to address and mitigate adverse impact. These methods will be applied taking into consideration the type of strategies that best fit specific portfolios' sustainability objectives and SAM's general sustainability strategies that apply across all asset classes.
PAI Leaders, PAI Intermediate performers and PAI Laggards: To start with, SAM will identify PAI laggards (red), and PAI intermediate performers (yellow), and PAI leaders (green) so that risk can be avoided, and more capital can be allocated to more sustainable companies.
Those companies identified as PAI laggards will be further analysed with the aim of addressing adverse impact and mitigate it, which may result in either engagement or exclusion by the Risk and Active Ownership team.
Engagement: Laggard companies may be selected for engagement due to poor PAI performance across several PAI indicators or some key material PAI indicators critical for the sector the company belongs to. Poor PAI data quality or coverage may also be a reason for engagement. If the risk and engagement team is not already covering this specific PAI indicator through SAM general engagement initiatives, a specific engagement will be created in order to address and mitigate the specific PAI indicator covering the laggard companies.
Exclusion: PAI laggards (red) may be selected for exclusion depending on the risk and severity of the negative impact identified, the total cumulative negative impact across all PAI indicators identified and the probability of successful engagement. If a company is excluded, it will be added to the Storebrand exclusion list.
The Risk and Active Ownership team may decide to engage with or exclude laggards regardless of the asset class. However, SAM's various subsidiaries, such as, Cubera, Real Estate and SKAGEN have the responsibility to further mitigate adverse impact within their own portfolios.
More generally, once the PAI laggards (red) are identified, portfolio managers have the opportunity and responsibility to further integrate this already categorised PAI data in order to further mitigate risk and allocate more capital into more sustainable companies.
This is to be done by selecting different methodologies. These may include: 1. "PAI worst in class approach" where companies scoring poorly on a PAI indicator can be avoided; 2. "High-risk sector only PAI approach", where only companies belonging to high-risk sectors and performing poorly on a PAI indicator may be avoided, or 3. "Integrated PAI risk rating approach," where companies are avoided based on the integrated average PAI indicator score or a combination of critical material PAI indicators. A strategy may also be developed for optimisation of investments in companies that are identified as PAI leaders [5-10 %] as part of the PAI class/sector/rating PAI analysis.
Storebrand considers sustainability and adverse impacts in its investment process for government bonds or other sovereign assets. We will not invest in countries lacking elementary institutions to prevent corruption, fulfil basic social and political and civil rights. We also make assessments based on current events such as conflicts, coup d'états and civil unrest. In addition, PAIs for sovereigns will be added to the assessment we already have in place. See Sovereign Bonds at Storebrand's Sustainability Investments.
While both social and governance aspects are also relevant, SAM has long addressed negative environmental impacts and mitigation within real estate investments. Targeting environmental footprint reductions in general, and improvements in GHG emissions through among others energy efficiency and waste recycling and reduction, is well integrated in our strategy and post investment property management and development activities. Pre-investment assessments and selection decisions are adjusted to support these targets. Sustainability due diligence focuses both on environmental standards and if relevant the costs of improvement. Third party environmental certification is an important tool for securing insight and good standards both pre and post investment. In addition, tenants' and main suppliers' business and practices are assessed in order to promote and cooperate on adverse impact mitigation in property management.
In order to enhance our adverse impact mitigation our practices both pre and post-investment will be further developed, and we will report on the 5 PAIs outlined above in 1. Description of PAIs: Mandatory and Voluntary PAIs
4. Engagement policies:
At SAM we believe in exercising our shareholder rights. We employ two main ways to achieve this: either through voting at shareholder meetings or by engaging with companies at different levels including management and board levels. This engagement can be both direct individually and/or in collaboration with other investors.
Our engagement strategy prioritises having a positive impact over just redressing wrongs. Therefore, we prioritize engagements where we think we can have a better opportunity to obtain good results and we have allocated more time and resources to those. This means better quality engagements with fewer companies for longer periods of time and when possible with other investors for more leverage. This also allows for more proactive engagement since our resources are not used on every controversial case (reactive engagement).
We will prioritise engagement based on:
- Materiality of ESG factors
- Geography/market of the companies (Nordic markets are prioritised since SAM has more leverage in these markets)
- Exposure (size of holdings)
- Degree of leverage/scope to effect change
- Response to ESG impacts that have already occurred
- Ability to have greater impact on ESG issues
- Follow-up from a voting decision
4.1 Normative engagements:
We will always consider engagement with companies in the following cases – as these could be grounds for exclusion based on normative breaches:
- Sustainability issues such as:
- Severe or systematic breaches of human rights
- Severe corruption and financial crime
- Severe environmental and climate damage
- Companies with a low sustainability rating in high-risk industries
4.2 Thematic focused engagement:
There are four main thematic focus areas for SAM's engagement. These themes are set as long-term engagement focuses as part of SAM's Engagement Strategy and serve as a guide in prioritising our engagements. The four thematic areas are:
- Race to net-zero (decarbonization)
- Nature related financial disclosure (biodiversity)
- Resilient Supply Chains (labour and human rights due diligence)
- Corporate Sustainability Disclosure
4.3 PAI-focused engagement
Many of the PAIs are already covered through our current engagement strategy and activities, however the further integration and mitigation of PAIs will entail consideration of further engagement with companies identified as laggards or intermediate performers according to the PAI mitigation methodology outlined above, or where PAI data is unavailable or insufficient.
5.Reference to International Standards
SAM's Sustainable Investment Policy and hence its assessment of PAIs are based on international norms and conventions including:
- UN Global Compact
- UN Sustainable Development Goals
- UN Guiding Principles for Business and Human Rights
- OECD Guidelines for Multinational Enterprises
- OECD Principles of Corporate Governance
- ILO Core Conventions
- Universal Declaration of Human Rights
- Covenant on Civil and Political Rights
- International Covenant on Economic, Social and Cultural Rights
- Convention on the Rights of the Child
- Convention to Eliminate All Forms of Discrimination Against Women
- Convention against Torture and other Cruel Inhuman or Degrading Treatment or Punishment
- Declaration on the Rights of Indigenous Peoples
- UN Convention Against Corruption
- The Basel Convention
- Council of Europe Criminal Law Convention on Corruption
- UN Principles for Responsible Investment (PRI) and the Principles for Sustainable Insurance (PSI)
- Task Force on Climate-related Financial Disclosures (TCFD)
- Carbon Disclosure Project
- Rio Declaration on Environment and Development
- United Nations Convention on Prohibitions or Restrictions on the use of Certain
- Conventional Weapons Which May be Deemed to be Excessively Injurious or to Have Indiscriminate Effects (CCW)
- Convention on Cluster Munitions
- Paris Agreement under the United Nations Framework Convention on Climate Change
- The Kyoto Protocol
- The Aarhus Convention
- The Convention on Biological Diversity
- Task Force on Nature-related Financial Disclosures (TNFD) - under development
Important notice: This text is correct at the time of writing, but may be amended subject to the publication of more detailed Level 2 rules and disclosure requirements of SFDR on 1 July 2022