ESG Integration - our approach. Nordea Asset Management

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1 ESG Integration - our approach Nordea Asset Management

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3 Table of Contents Our mission 5 Nordea Asset Management 6 ESG and the investment process 8 Our ESG products 11 3

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5 Our mission is to deliver returns with responsibility Nordea Asset Management is part of the Wealth Management business area within the Nordea Group, the largest financial services group in Northern Europe, serving approximately 11 million customers. We are an active asset manager with a global business model, offering services in Europe, the Americas and Asia. We cover all asset classes from fixed income and equity to multi asset solutions and manage local and European as well as US, global and Emerging Markets products. Our mission to deliver returns with responsibility is based on active management and thorough risk management. We strive to optimise risk-adjusted returns for our clients versus a benchmark or in absolute terms. With EUR 183 bn in assets under management (end Q3 2015), we are one of the fastest growing asset management companies, being the largest asset manager in the Nordics with a growing European presence and business: The largest Nordic retail fund provider, with a 16% market share and more than 1.8 million unitholders. Serving more than 600 Nordic and international institutional clients. Growing 3rd party fund distribution franchise servicing 350 international fund distributors of which 21 global Wealth Managers. To deliver and meet investor needs in all market conditions, we are pursuing a unique multiboutique strategy by establishing segregated teams for key asset classes, combining the indepth expertise of our internal boutiques with external boutiques and the scale and stability of a large company. 5

6 Nordea Asset Management as a responsible and active owner A principle-based approach to investing In our approach to asset management Nordea applies internationally recognised principles of responsible investment and active ownership. Nordea has developed its policies, procedures and investment products to ensure that the companies we invested in all live up to various criteria of sound environmental, social and governance performance. Nordea Asset Management (Nordea AM) was among the first Nordic institutions to sign the Principles for Responsible Investment (PRI) in November By endorsing the PRI we commit to integrating ESG factors into our investment analysis, decisionmaking processes and ownership policies and practices. The PRI, together with international norms 1, are the basis for our responsible investment policy. This way Nordea AM acts as an active owner on behalf of its clients in companies and sectors across the world. By combining financial performance with responsibility, we strive to offer clients responsible solutions. We believe that we can add value to our clients by actively considering environmental, social and governance issues (ESG) in our analysis and investment decisions particularly through our investment research, asset allocation, and performance monitoring. We recognise that integrating ESG issues forms part of our fiduciary duty to clients and beneficiaries, and want to see their portfolios managed in a way that systematically assesses drivers of risk and return over the long term. Stewardship We seek to encourage best practices through participation in international initiatives. In addition to having signed the PRI, Nordea AM is also a signatory to the CDP (Carbon Disclosure Project), which aims to collect and spread information on greenhouse gas emissions, climate change strategies and water-related risk. Nordea AM uses the database information in its ESG analysis. Other initiatives we are involved in are for example the Institutional Investor Group on Climate Change, the United Nations Environment Programme Finance Initiative s (UNEP FI), Water & Finance Work Stream, The Montréal Pledge and local sustainable investment forums. Ensuring long-term returns through corporate governance We believe that sound corporate governance is essential to create long-term positive developments in companies and to provide added value for shareholders, employees and society at large. Active corporate governance is an integral part of being a responsible owner and our governance activities are conducted in the interests of our unitholders and strengthen our investment decisions. We focus on increasing transparency and openness in contacts between the company and shareholders on issues such as board and committee composition, shareholder rights and executive remuneration. 1 The United Nations Global Compact, the OECD Principles for Corporate Governance, the OECD Guidelines for Multinational Enterprises, the Universal declaration on Human Rights, the Guiding Principles on Business and Human Rights, the core ILO conventions and the Rio Declaration on Environment and Development. 6

7 Proxy voting We actively vote our shares across all markets and our teams work together to discuss and vote the shareholdings we are responsible for. This includes taking voting action on companies where ESG engagement has been unsatisfactory, concerns remain and/or significant controversies have arisen. Engagement and collaboration Our model for outlining engagement activities is supported by structured processes to prioritise our efforts on key issues as defined by materiality, relevance for our clients, exposure in our funds, our ability to influence as defined by our holdings, our relationship with the company and opportunities to collaborate with others. All funds managed by Nordea AM are screened for verified violations of international norms regarding environmental protection, human rights, labour standards and business ethics. We review our funds yearly to ensure that they continue to meet our criteria for inclusion. We do not invest in companies that are involved in the production of nuclear weapons or illegal weapons such as cluster munitions and antipersonnel mines. Nor do we invest in companies with 75% of revenues derived from sales of coal products and which do not have a meaningful opportunity to diversify from coal. We engage proactively with companies violating international norms, and through active ownership we encourage companies to improve in their ways. If a company does not change their normbreaking behaviour, Nordea AM can decide to divest and exclude such a company. Our engagement activities are conducted on behalf of all our funds. By working individually or in collaboration with other investors, we are able to influence companies in which we are invested to improve their governance, risk management, performance or disclosure related to ESG. We initiate dialogue with the companies representing our largest holdings as well as companies identified for our ESG enhanced funds and identified to have a high ESG risk exposure to a certain theme or sector issue. Reporting Our approach to responsible investment is explained in more detail in our Responsible Investment Policy, our positions papers and videos from field trips, which are available on or on request. We produce an ESG annual report, which describes and has examples of recent stewardship and engagement activity. 9

8 ESG and the investment process ESG integration into investment processes In addition to the traditional application of ESG, our strategy is to include ESG analysis as an element within our internal boutiques investment processes Investment processes with fully integrated ESG analysis We believe this will improve risk management and thereby riskadjusted returns Positive screening STARS portfolios Nordea AM norm-based screening Selective sector screening Niche portfolios with sector and / or positive screening in addition to Nordea AM norm Main portfolios screened for Nordea AM norm (currently approx 57 companies excluded globally) 8

9 an integrated approach Nordea AM takes returns with responsibility to a new level to ensure competitive, consistent and responsible returns for all funds. Environmental, social and governance issues are an increasing source of risk and opportunity, and we therefore seek to integrate ESG issues into our investment analysis methodology within our internal boutiques. Nordea AM s processes include ESG data as one of the factors used in assessing investments. We believe this will improve risk management and thereby riskadjusted returns. With our integrated approach, our clients will have the added benefits of increased transparency and a better understanding of how their money is invested. ESG research 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. Social and technology change as well as climate change and other environmental issues impact business models. First, companies are assessed based on if they conduct their business responsibly in relation to their stakeholders employees, suppliers, customers, investors, the environment or society at large. Second, we assess whether companies position their products or services well in relation to broader sustainability megatrends such as climate change or changing demographics. We underpin our approach with externally sourced ESG research and ratings. This provides coverage of over 4,000 companies globally both in terms of their practices and tracking controversial issues. Best in class infrastructure Our responsible investment team is an integral part of our investment team and works with the fund managers and analysts to help integrate material ESG analysis into our investment approach and across portfolios. Our research department includes both financial and ESG analysts and company assessments are shared between fund managers as well as financial and ESG analysts. All company analysis should include ESG assessment from the internal ESG team or from external sources. The ESG research methodology on company level is a combination of two distinctive approaches. 9

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11 Our ESG products and capabilities As part of Nordea AM s ambition, we have created a family of investment funds under the Stars brand. The Stars funds are about positive selection and selecting quality companies with well-managed ESG profiles that generate longterm economic value. All investments in our Stars funds undergo a thorough financial analysis and a proprietary in-house ESG analysis. This enables us to identify material risks and opportunities relating to the companies medium- to long-term operational performance and strategic positioning in the market. We also offer client-specific solutions based on in-house capabilities on ESG analysis, on engagement as well as external sources for screening. Responsible investment strategy Definition Nordea AM capabilities Applicable funds ESG integration ESG is incorporated into investment analyses and decision making ü Equity funds managed by internal boutiques and some index funds Engagement Active voting and engagement in investee companies ü All equity funds Negative screening norms-based or sector screen Avoidance of investment in targeted companies, industries and countries ü Some funds, and mandates Positive selection Seeking to invest in companies with a commitment to responsible business models and demonstrate good ESG performance ü STARS funds 11

12 Nordea Asset Management M711 Mäster Samuelsgatan Stockholm Sweden