Written by: Christian Hyldahl, Head of Asset Management and Sasja Beslik, Strategic Leader Global Responsible Investments
Creating value the responsible way
Asset management is all about value creation. At Nordea Asset Management we believe that responsible value creation is what makes the difference.
The commitment to being a responsible asset manager is deeply embedded in our corporate culture and business model. Our mission is to deliver returns with responsibility. To us, this is also closely linked to being an active asset manager. In addition to our mission of delivering returns with responsibility to our investors the function of active asset managers (contrary to passive) is to secure the right cost of capital for individual companies. This is the core of efficient capital markets and we believe that optimising returns with responsibility is the way to achieve correct pricing of cost of capital. Our responsible approach is what differentiates us from passive managers. To us “Responsibility” means focusing on operational excellence, risk adjusted returns and proactive ESG approach in our investments.
Recently published academic studies and market reviews confirm that the Sustainable and Responsible Investments market has grown spectacularly and have done so at a faster rate than the broader European asset management market. Asset owners see ESG integration as an opportunity to generate long-term performance while fulfilling their fiduciary duty, and investment managers see it as a way to improve risk management in the financial performance of their investment portfolio. This investment strategy offers companies opportunities to attract long-term investors while, at the same time, reducing their shareholder turnover, aligning their investment strategy with the real needs of their business and laying down the foundation for a sustainable future. Narrative for 2050 is clear, there is only win-win option on the table regarding ESG.
Active Ownership is leading the way
Nordea Asset Management has established a dedicated investment concept STARS with determined strategy to create strong returns by investing in companies that act responsibly – The Star Funds. Companies in our Star Funds portfolio are assessed for how they manage risks and opportunities related to ESG factors - environmental issues, social issues such as human rights, labour standards and business ethics. Our aim is to identify key issues that are of material relevance for the company to address. We believe that companies actively working on these issues and have a clear governance structure for dealing with these aspects expose their business to less risk. This creates a solid foundation for even better risk management and returns long-term.
Our ambition is to fully integrate ESG and leverage ESG analysis and engagement solutions in order to embed ESG across all investments processes, even if it will take time to have the full results and conclusions of this ESG integration work.
We have won international and national awards for our Emerging Stars fund as well as for our ESG integration efforts. Because of this we are investigating our standing in investing in companies involved in coal.
We are also committed to assisting clients with the adoption of responsible investments strategies that enhance long-term investment performance.
The future landscape of investments in a changing paradigm
As part of our ESG analysis efforts we continuously assess and evaluate transformative themes and areas which we believe shape the future landscape of investments.
Coping with changes
The new global growth paradigm means doing more with less resources and identifying new more resource efficient and less exploitative routes to follow. Crucial resources must be conserved and managed through better managing the demand of products and services and through the use of efficient supply mechanisms. One example is to deploy more efficient energy distribution systems, such as ”super grids” and ”smart grids”. Water demand through water efficient systems such as drip irrigation, shifts in mix of crops sown is another example.. Better management of food demand can be achieved through changes in distribution, packaging, and content.
Technology change is likely to resolve some ESG issues and exacerbate others. On the one hand technology can be leveraged to use resources more efficiently, at the same time it can be highly resource and energy dependent. Technology can enhance social networks and facilitate access to labour markets, but there is also risk related to privacy and data integrity in critical social infrastructure.
In the aftermath of the credit crunch there is an increased emphasis on inequality issues. As mentioned above, technology developments may exacerbate this. Overall, we see the risks of social unrest, including labor unrest, as rising for as long as these trends continue. Unemployment, government policy responses, as well as labor rights, therefore remain important ESG issues, along with supply-chain management and related issues such as product safety and human rights. We believe that social issues should be high up on the corporate list of priorities. This includes responding to shifts in the political landscape in light of still-constrained government finances. Expectations are likely to be high in relation to corporate behavior in the domains of food, water, energy and land security.
The relationship between firms and society was on the front burner in many years and we expect this to continue for as long as credit crunch effects persist. Environmental and social issues continue to impact company business models. Relevant issues here automatically become governance issues which puts greater demand on board oversight and governance of ESG issues and adequate internal control and compliance processes, including anti-corruption programs.
Climate change as an issue for markets and companies has been fully aired, and so much associated with the lack of success in areas of regulation such as carbon trading, that it tends to be moved to the back burner. Climate change is still a key issue for companies, together with the related issues of food security, water security, energy security and land security.