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Better investment through ESG analysis

Have you ever considered that you actually own a small slice of the companies in which your funds invest? As a shareholder you might be interested in how your companies operate. Do the companies ensure their workers’ safety, do they release toxins into the environment and do they comply with international treaties?

Following environmental and social responsibility trends can give a company a competitive edge.  Unethical or illegal activities, on the other hand, could tarnish its reputation and make customers boycott it.

The manner in which a company fulfils its corporate social responsibility can affect its share price and the value of your savings.  That’s why at Nordea Funds, the sustainability of investments is assessed through ESG analysis conducted by award-winning investment experts specialising in environmental, social and good governance aspects. 

Our funds are active owners

At Nordea Funds, we believe that using the influence given to us by our investments allows us to steer companies in a more sustainable direction. That is how we can be active owners who secure the long-term value of the assets entrusted to us by our fund customers.

Our funds’ portfolio managers are in regular contact with hundreds of companies and their stakeholders, engaging in dialogue with them directly and in cooperation with other investors, for example through the global Climate Action 100+ initiative.

We also annually represent the unit holders of our funds at thousands of annual general meetings across the world and take part in the work of nomination committees that elect companies’ senior management. In the Nordea funds Voting Portal, you can see how we have voted.

From basic sustainability to the Sustainable Stars

All of our funds adhere to the basic ESG criteria outlined in the Responsible Investment Policy of Nordea Funds. For instance, Nordea funds don’t invest in coal mining companies or banned weapons. In addition, all fund investments are regularly screened. If companies that violate international treaties are detected in the screening, the fund will engage in dialogue with these companies in an attempt to correct their conduct.

In addition to promoting basic sustainability, many of our funds evaluate sustainability through special criteria that are aligned with their investment philosophy. You can see the “sustainability-related information” for every fund in the Funds Now service.

Some of our funds choose their investments based on a certain sustainability theme, such as social impact, equality or combatting climate change. The portfolios of our sustainable balanced funds, on the other hand, combine various ways of considering sustainability in addition to different investments and investing philosophies.

In some of our funds, sustainability is a key element of the idea behind the fund. In Nordea’s Stars Funds, our ESG professionals aim to identify the key opportunities and risks involved in various companies and to assess how well these companies are prepared for future challenges, such as energy and water scarcity. As a result, the Stars Funds select companies that rank highly or show promise in ESG matters and that have the potential to shine more brightly with our experts’ help.

Read more about Nordea’s Stars Funds

Well-managed companies are more profitable

It’s crucial that the companies in which our funds invest are managed as well as possible. Good governance improves corporate profits and benefits the companies’ shareholders and employees as well as society at large.

For this reason, when selecting companies to invest in, we assess their profits as well as their corporate governance and how well they safeguard their shareholders’ rights. We also ensure that they achieve their profits in the most sustainable way possible.

We encourage companies to make their governance transparent and strive to tell businesses and our customers about our activities as openly as possible.

You can read about the latest in our work in the Nordea Funds Corporate Governance Report.

Our goal is change for the better

As active owners, we aim to develop the companies selected by our funds and to improve any poor practices they may have. We can’t just give up and shift the responsibility for potential problems to the next owners.

If we find companies that violate international treaties among our funds’ investments, our ESG professionals will engage in dialogue with their representatives. The aim of such dialogue is to encourage the companies to improve their practices and to ensure that violations no longer occur.

However, if such a company fails to correct its course, we may divest it from all Nordea funds and exclude it in the future, as well.

We publish a list of companies in which our funds do not invest.

Carbon footprint

We report the carbon footprint of those of our funds for which it can be calculated. Reporting the carbon footprint is the next step in increasing the transparency of our funds.

Carbon footprints of funds
Other greenhouse gases also included
Calculating the carbon footprint
Which funds can be compared?
Updates, criteria and data
What is not measured

Carbon footprints of funds

 

A carbon footprint can be measured in several connections. It means the amount of carbon dioxide emitted by an industry, a product or even an individual person. We display the carbon footprints of our funds when this information is available for at least 75% of the fund’s investments.

The carbon intensity measure we use gives us a picture of how much carbon dioxide or other greenhouse gases have been emitted during the past 12 months by the companies or bond issuers in which the fund invests. The figure is expressed as tonnes of carbon dioxide-equivalent (CO2-e) emissions per million US dollars of the company’s or issuer’s revenue.

The calculation is based on data provided by the companies themselves, most often in their annual reports, and on their emission estimates. Data on the companies’ carbon footprints are collected and provided by MSCI Inc. and ISS Ethix. The carbon footprint figures on our funds pages are updated monthly.

Other greenhouse gases also included

The carbon footprint also includes other greenhouse gases. As some gases affect the climate more than others, greenhouse gases are converted into the equivalent amount of carbon dioxide with the same global warming potential. This measure is called the carbon dioxide equivalent (CO2-e). For example, methane causes 21 times as much global warming as carbon dioxide. A tonne of methane thus corresponds to approximately 22 tonnes of carbon dioxide equivalent.

Calculating the carbon footprint

 

Nordea’s calculation model is based on weighted carbon intensity and recommended by the Swedish Investment Fund Association.

In this model, the carbon footprint of each investment is multiplied by a number that represents the investment’s relative proportion of the fund’s size (e.g. 5%).

As the carbon dioxide emissions are compared with the company’s revenue, the model indicates how carbon-intensive the company’s operations are and thus also demonstrates the carbon intensity of the fund’s investments. This enables investors to compare the results of the different funds.

Which funds can be compared?

When the carbon footprints of different funds are compared, it is important to compare only funds with holdings of similar companies investing in the same kinds of markets (emerging markets, for example) and using the same calculation models in the same currency.

Updates, criteria and data

 

Nordea Asset Management has chosen MSCI Inc. and ISS Ethix to supply the data based on which the carbon footprints of our funds are calculated.

As the investments of the funds change, we update the calculations monthly. This means that the carbon footprint of fund portfolios with a slow turnover rate decreases or increases as the companies’ emissions decrease or increase. On the other hand, if a fund’s turnover rate is high, the carbon footprint may decrease or increase considerably as holdings are bought or sold.

In accordance with the recommendation of the Swedish Investment Fund Association, we calculate the footprint of our funds when the data available on carbon dioxide (or on other greenhouse gas) emissions covers at least 75% of the market value of the fund’s investments.

We publish the carbon footprints of Nordea’s equity, fixed income and balanced funds. There are currently no methods available for calculating the carbon footprints of alternative funds, such as hedge funds. However, we will follow the development of carbon footprint calculation models for this asset class, too, in order to be able to calculate and publish the carbon footprints of alternative funds when it becomes possible.

What is not measured

The carbon footprint is a rough indicator, which reflects a company’s CO2 emissions in proportion to the fund’s ownership. The calculations are not conclusive and they do not include indirect emissions, for example. This is why these calculations should be treated as indicative rather than absolute facts. Despite this, we believe that the carbon footprint is an important tool that enables investors to also consider the climate impact alongside traditional factors, such as risk and return, when selecting a fund to invest in.

It is good to keep in mind that the carbon footprint does not reflect the full environmental impact of an investment because:

  • The carbon footprint only covers certain types of emissions. The calculations do not always include indirect emissions from suppliers nor emissions from the use of the company’s products.
  • The emission data provided by companies is not always comprehensive.
  • The calculations are not available for certain types of investments.
  • The carbon footprint does not include information on fossil fuel reserves.
  • The calculations do not tell us anything about how well the portfolio is prepared for or how it supports the transition to a low-carbon society.

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