Active ownership, exclusion and ESG - we explain what it all means
Actively exercising your rights as a shareholder. It can take various forms, including the exercise of voting rights or active engagement. Actively engaging means having an active dialogue with the managers and boards of directors of investee companies on business strategy and execution, including specific sustainability issues and policies. Active ownership is generally regarded as one of the most effective mechanisms to reduce risks, maximise returns and have a positive impact on society and the environment. Read more about what it is here.
Carbon and climate neutrality
Carbon neutrality, net zero emissions and climate neutrality are often used synonymously, meaning the neutralization of the impact of emissions on the climate system.
However, in science, the scope of neutralizing climate forces differs as there are other greenhouse gases besides carbon that contribute to climate change.
The idea behind climate compensation is that companies, organisations and private individuals make a voluntary financial contribution to projects that capture greenhouse gases at a level equivalent to the emissions we cause.
A carbon credit is an instrument that represents ownership of one metric tonne of carbon dioxide equivalent that can be traded, sold, retired, etc.
The carbon dioxide footprint is the total amount of CO2 emissions caused by an organisation, event, product or person. It is measured in tons per year. From an investment perspective, the CO2 footprint of a company can be viewed on both the corporate and portfolio level. A portfolio’s carbon footprint is the sum of a proportional amount of each portfolio company’s emissions. It can be reduced by excluding or underweighting sectors or companies with a large carbon footprint, or by engaging with them to lower their footprint.
A carbon offset is a reduction in emissions of carbon dioxide or other greenhouse gases made in order to compensate for emissions made elsewhere. A carbon offset project could be renewable energy projects, such as building wind farms that replace coal-fired power plants.
Climate positive vs carbon negative - is there a difference?
Climate positive means that an activity goes beyond achieving net zero carbon emissions to actually create an environmental benefit by removing additional carbon dioxide from the atmosphere. Carbon negative means the same thing as “climate positive”.
Collective Commitment to Climate Action (CCCA)
CCCA is the most ambitious global banking sector initiative, supporting the transition to a net zero economy by 2050. It brings together a leadership group of 38 banks from across all six continents who have committed to align their portfolios with the global climate goal to limit warming to well-below two degrees, striving for 1.5-degrees Celsius. Nordea and 30 other PRB signatories announced the Collective Commitment to Climate Action in September 2019
An important consideration in any carbon/climate neutral or net zero claim is which emissions scopes a company’s activities address. Emissions are divided into Scope 1, Scope 2, and Scope 3.
A form of active ownership. The practice of shareholders entering into a dialogue with the management of companies to change or influence the way in which the companies are run. Read more about Nordeas engagement here.
The term ESG refers to how environmental, social, and governance issues can affect the performance of investment and lending portfolios (to varying degrees across companies, sectors, regions, asset classes and over time). ESG screenings are also used in evaluations of partners and suppliers.
EU action plan
On 7 March 2018, the European Commission released an action plan for financing sustainable growth. The plan is a response to recommendations from the High-Level Expert Group (HLEG) on Sustainable Finance, which were submitted to the Commission on 31 January 2018.
The EU taxonomy is a classification system, establishing a list of environmentally sustainable economic activities. The EU taxonomy is an important enabler to scale up sustainable investment and to implement the European Green Deal. Read more about the EU Taxonomy here.
European green deal
The European Green Deal is about improving the well-being of people. Making Europe climate-neutral and protecting our natural habitat will be good for people, planet and economy.
The EU will become climate-neutral by 2050, protect human life, animals and plants, by cutting pollution, help companies become world leaders in clean products and technologies, help ensure a just and inclusive transition with the commitment of leaving no one behind.
A list of certain stocks, sectors and practices, which investors deem unsuitable based on specific moral criteria or other criteria and ban them from investment (e.g. companies active in the production of illegal or nuclear weapons, pornography or tobacco).
Check out Nordea Asset Mangement’s exclusion list here.
GHG Protocol (The Greenhouse Gas Protocol) establishes global standardised frame- works to measure and manage greenhouse gas (GHG) emissions from private and public sector operations, value chains and mitigation actions. It is the most widely used greenhouse gas accounting standard in the world. Here you can read more about the GHG Protocol.
LEED certification of green buildings
LEED (Leadership in Energy and Environmental Design) is an internationally recognized green building certification system, providing third-party verification that a building or community was designed and built using strategies aimed at improving performance across all the metrics that matter most: energy savings, water efficiency, CO2 emissions reduction, improved indoor environmental quality, and stewardship of resources and sensitivity to their impacts. All Nordea’s head offices are certified as green buildings.
GRI stands for the Global Standards for Sustainability Reporting and create a common language for organizations – large or small, private or public – to report on their sustainability impacts in a consistent and credible way. This enhances global comparability and enables organizations to be transparent and accountable.
A relatively new form of targeted investment focusing on financing businesses and projects that are designed to have intentional, positive and measurable impacts on society while simultaneously delivering financial market returns.
IPCC (The Intergovernmental Panel on Climate Change) is the United Nations body for assessing the science related to climate change. The IPCC was created to provide policymakers with regular scientific assessments on climate change, its implications and potential future risks, as well as to put forward adaptation and mitigation options. Read more here.
Just Transition is a vision-led and unifying set of principles, processes, and practices that build economic and political power to shift from an extractive economy to a regenerative economy. This means approaching production and consumption cycles holistically and waste-free. The transition itself must be just and equitable, meaning that the most vulnerable members of society, as well as regions and territories that are in the need of special consideration, have to be involved in decision-making. Similarly, young people must be engaged to ensure the inter-generational fairness.
Materiality of ESG factors
Materiality is the principle of defining the social and environmental topics that matter most to businesses and stakeholders. ESG analysis typically considers any factor that can have a significant impact on a company’s core business value drivers – namely growth, profitability, capital efficiency, reputation and risk exposure – to be financially material. Thus, RI analysts typically start by determining which information is “material “for specific sectors.
Limiting global temperature increase to 1.5°C above pre-industrial levels requires global net human-caused greenhouse gas (GHG) emissions to reach net zero around 2050, meaning that no additional emissions are added to the atmosphere. Net-zero refers to a balance between reduced emissions through decarbonization (-), carbon removal (-) and remaining carbon emissions (+) that most likely will occur even after 2050 for some geographies and processes.
Nordic national climate targets:
- Denmark: Denmark’s long-term objective is to become independent of fossil fuels by 2050, when production of renewable energy should equal total energy consumption.
- Sweden: The overarching climate target is to achieve zero net emissions of greenhouse gases by 2045 and hereafter negative emissions. Emissions from Swedish territory are to be at least 85 percent lower 2045 than they were 1990.
- Finland: Finland will achieve carbon neutrality by 2035 - United Nations Partnerships for SDGs platform. The Government will work to ensure that Finland is carbon neutral by 2035 and carbon negative soon after that.
- Norway: Norway's target is to reduce emissions with at least 50 %, and towards 55 % by 2030 compared to 1990 levels. Norway's target is to be carbon-neutral in 2030, if emissions cuts are made by other countries, and by 2050 regardless of international emission cuts.
Norm-Based Screening is an analysis methodology that helps investors make decisions regarding companies’ adherence to global norms in the areas of environmental protection, human rights, labour standards, and anti-corruption.
Read more about norm-based screening in our Responsible Investments policy.
The Paris Agreement is a legally binding international treaty on climate change. It was adopted by 196 countries at COP21 in Paris, on 12 December 2015 and entered into force on 4 November 2016. It sets out a global framework to avoid dangerous climate change by limiting global warming to well below 2°C and pursuing efforts to limit it to 1.5°C. It also aims to strengthen countries' ability to deal with the impacts of climate change and support them in their efforts. Read more about the Paris Agreement here.
Principles for Responsible Banking (PRB)
The UNEP FI Principles for Responsible Banking are a unique framework for ensuring that signatory banks’ strategy and practice align with the vision society has set out for its future in the Sustainable Development Goals and the Paris Climate Agreement. 214 banks have now joined this movement for change, leading the way towards a future in which the banking community makes the kind of positive contribution to people and the planet that society expects. Nordea is the only Nordic bank to have co-founded these principles.
Principles for Responsible Investment (UNPRI)
The United Nations Principles for Responsible Investment were launched in April 2006. The goal of these six UN-backed principles is to describe the implications of sustainability to investors and to support signatories in incorporating these issues into their investment decision-making and ownership practices. By implementing the principles, the companies contribute to the development of a more sustainable global financial system. Nordea is a signatory of the Principles for Responsible Investment.
Responsible Investment (RI)
The primary term used for the inclusion of Environmental, Social, and Governance (ESG) criteria in the investment process. Through that process Responsible Investment aims to generate competitive long term financial returns while creating positive change. Read more in Nordea’s Responsible Investment policy.
Transition risks can occur when moving towards a less polluting, greener economy. Such transitions could mean that some sectors of the economy face big shifts in asset values or higher costs of doing business.