Principal Adverse Impact Statement – Storebrand Asset Management
1. Summary
The following is the Principal Adverse Impact (PAI) Statement of Storebrand Asset Management AS (SAM) and its subsidiaries, Delphi Funds, Storebrand Fonder, SKAGEN Funds 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 on 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 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 our Sustainable Investments 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 June 30th, 2022. Reference to the PAI Statement and approach to mitigating PAIs has been included in Storebrand’s revised Sustainable Investment Policy - approved by SAM’s Board on February 2022.
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2. Description of PAIs: Mandatory and Voluntary PAIs
SAM will gather data and monitor the principal adverse impact of all mandatory as well as several 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
- Investee countries subject to social violations
- Deforestation
- 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 prioritize 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 applies to all equity and debt portfolios:
- Adverse impacts 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 labor; 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 to society, the environment or health. See our Sustainable Investment Policy for more detail.
SAM addresses these adverse impacts by using several combined strategies that involve:
a. 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.
b. Engaging with companies to discuss these adverse impacts with the aim to improve corporate behavior and thus reduce the adverse impact.
c. Integrating sustainability risk ratings in investment decisions to avoid or invest less in companies with high-risk sustainability rates and prioritize or invest more in companies with low sustainability risk.
Although principal adverse impacts (PAIs) are already being 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 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 here as well as Storebrand Sustainable Investment Policy.
3.2 Policies on identification of PAIs
SAM has been identifying adverse impact 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, our work on Biodiversity and Storebrand's standard.
Regarding the identification of the 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 and SFDR requirements become more concrete. So far, we have done an initial gap analysis and assessed the data quality of the PAI indicators, including whether we deem the data coverage from our data suppliers to be good, medium or poor. Based on this, we have also identified which indicators are already covered by our existing procedures (such as indicators covered by our quarterly screening) and identified how the indicators are addressed through our active ownership. We have assessed several data providers and chosen one as our main supplier of PAI data.
Based on this, we feel confident that we will be able to apply this general approach to our management of PAIs. However, we might have to adjust over time to make room for new requirements and lack of data.
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 analyzed 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 analyzed with the aim to mitigate adverse impact through engagement. Please see 3.3 Addressing of PAIs and Mitigation
GREEN: In addition, the analyzed PAI data will be further integrated in financial decisions with the aim to allocate more capital to PAI leaders, and thus lift 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 investments considerations by applying several methods ranging from ESG Integration, Exclusions, and Active Ownership. Please see Storebrand's Sustainable Investment Policy and description of policies above for more information on how SAM addresses adverse impact in general, which overlaps to an extent with PAI indicators.
SAM builds over this general approach to adverse impact mitigation by further focusing on addressing and mitigating adverse impact 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 SAMs general sustainability strategies that apply across all asset classes.
PAI Leaders, PAI Intermediate performers and PAI laggards:
To start, 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 analyzed with the aim to address 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. Click here for more information regarding SAM main focus engagement areas.
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. Exclusion will be added to Storebrand exclusion list. The Risk and active Ownership team has already started implementing this PAI laggard stage of the analysis focusing on specific sectors and issues. As a result, and so far, based only on our own research and analysis since we lack data from our data providers, we have divested from two companies purely based on a PAI risk analysis approach after engaging with them. The Risk and active ownership team has also flagged several companies so that our portfolio managers can further mitigate. This is a first attempt to apply the SFDR framework.
The Risk and Active Ownership team may decide to engage or exclude laggards regardless of the asset class. However, different SAM's 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 categorized 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 optimization of investments in companies that are identified as PAI leaders [5-10 %] as part of the PAI class/sector/rating PAI analysis.
Sovereign bonds:
Storebrand considers sustainability and adverse impacts in its investment process for government bonds or other sovereign assets. Social violations are a part of our country risk screening process, and Storebrand will not invest in sovereign bonds or state controlled companies from 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'etats 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.
Real-Estate investments:
While both social and governance aspects are relevant as well, SAM has within real estate investments long addressed negative environmental impacts and mitigation. 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 prioritizes 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 prioritize engagement based on:
- Materiality of ESG factors
- Geography/market of the companies (Nordic markets are prioritized since SAM has more leverage in these markets)
- Exposure (size of holdings)
- Degree of leverage/scope to effect change
- Responses 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 guide in the prioritizing of 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.
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5.Reference to International Standards
SAM's sustainable investment policy and hence its assessment of PAIs are based on international norms and conventions such as:
- 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