Sustainability-related disclosures

Sustainability-related disclosures
Norron Select

Publication date: 2023-02-28

Summary

The Sub-Fund promotes environmental and social characteristics, but does not have sustainable investments as its objective. Norron Select is a Nordic fund with an absolute return target, that promotes environmental and social characteristics. The environmental and social characteristics are promoted by the Sub-Fund’s investments in equity and bond instruments. The Sub-Fund will make a minimum proportion of 35% of sustainable investments.

The sustainable investments made by the Sub-Fund will contribute to the achievement of the 2030 Agenda and the 17 Social Development Goals (SDGs). Sustainable investments are investments that (i) by provision of its products or services contribute to the SDGs and as such one of the Sub-Fund’s five sustainability objectives, (ii) not cause significant harm to any environmental or social sustainability objective, and (iii) comply with good governance practices. The sustainable investment objectives are: Climate and environment, Healthy and prosperous society, Innovative and sustainable solutions, Sustainable cities and infrastructure, and Sustainable finance.

The Sub-Fund also promotes environmental and social characteristics by using negative screening of assets to ensure compliance with its exclusion criteria and through an active management and ownership strategy. The ownership strategy to promote environmental and social characteristics aims to encourage all investee companies to set climate targets verified by the Science Based Targets initiative, become signatories to the UN Global Compact and to disclose material sustainability risks in their annual and/or sustainability reports.

The Sub-Fund uses the following sustainability indicators to measure its attainment of the environmental and social characteristics:

Sustainable investments contributing to the achievement of the 2030 Agenda and the SDGs
Negative screening of assets
Active management and ownership strategy

The Investment Manager also assesses and measures indicators for adverse impacts on sustainability factors.

The Investment Manager primarily uses data from the portfolio company’s annual and/or sustainability report in combination with data from Norron’s ESG questionnaire that is sent out to all investment companies annually. To follow up the climate objectives of the investments, the Science Based Targets initiative’s database is used, and to measure the share of Global Compact signatories, the Global Compact database is used. In case the portfolio company does not provide sufficient data, estimates from external sources can be used, but estimates are to be avoided to the greatest possible extent. All handling of data is done in the portfolio management system.

The Investment Manager conducts an extensive qualitative and quantitative analysis of each investment to assess and measure how the Sub-Fund promotes the social and environmental characteristics. The method holds limitations as not all companies publish the data required to carry out a complete analysis. Additionally, the basis of the analysis can vary between companies as there is currently no common standard for the reporting of all data. The Investment Manager takes these limitations into account and thus makes a qualitative and quantitative assessment of each individual investment, which is also documented. When data is not available, estimates from third party data providers may be used. The Investment Manager is aware that the estimates may be inaccurate and therefore uses these with caution.

Prior to an investment, the Investment Manager conducts a thorough due diligence on each company that the Sub-Fund invests in. As part of the due diligence process, the Investment Manager ensures that the investment is compliant with the exclusion criteria for the Sub-Fund, and makes assessments to ensure that each issuer follow good governance practices. The Investment Manager is also to control and document the reporting and policies of the investment company. Sustainability risks are considered prior to each investment. For sustainable investments, the Investment Manager is to ensure compliance with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, including the principles and rights set out in the eight fundamental conventions identified in the Declaration of the International Labour Organisations (ILO) on Fundamental Principles and Rights at Work, the eight ILO Fundamental Conventions and the International Bill of Human Rights. KPIs are followed up annually and an analysis of adverse impacts on sustainability factors as well as sustainability risks related to the investment is conducted. Due diligence and annual updates are documented in the portfolio management system.

The Sub-Fund applies an active management philosophy in its quest to generate sustainable and economic value creation for the shareholder of the Sub-Fund.

No sustainable investment objective

The Sub-Fund will promote environmental and social characteristics, but does not have sustainable investments as its objective. The Sub-Fund will make a minimum proportion of 35% of sustainable investments.

The Sub-Fund partially intends to make sustainable investments with both social and environmental objectives. The financial product’s sustainable investment objective aims to contribute to the achievement of the SDGs and the 2030 Agenda. The Sub-Fund has five sustainable objectives targeting the SDGs.

The 2030 Agenda for Sustainable Development was adopted by the UN General Assembly in 2015 and is a plan of action for people, planet and prosperity. It also seeks to strengthen universal peace in larger freedom to be achieved by 2030. The 2030 Agenda includes 17 SDGs and 169 targets which aim to stimulate action in areas of critical importance for humanity and the planet. The SDGs include both environmental and social goals which the Sub-Fund by its investments will contribute to.

The Sub-Fund has five sustainable investment objectives, which are based on and aims to contribute to the SDGs and the 2030 Agenda.

The sustainable investment objectives of the Sub-Fund, including the targeted SDGs for each objective, are the following:

Climate and environment
The Sub-Fund will make investments that, through its product or services, contribute to a reduced impact on the climate, environment or oceans, or contribute to a more sustainable agriculture or forestry. The investment can also offer products and services that enable others to reduce climate and environmental impact.
The sustainable investment objectives targets the following SDGs: 7, 12 13, 14, 15
Healthy and prosperous society
The Sub-Fund will make investments that provide products or services that contribute to a well-functioning society or improvements in people’s modern everyday life. The investment can also offer food, services and products in health, medicines or medical aids.
This sustainable investment targets the following SDGs: 1, 2, 3, 4, 5, 6, 8, 10
Innovative and sustainable solutions
The Sub-Fund will make investments that provide innovative services and products that contribute to a sustainable society. The investment can also aim to support others in the transition to sustainable development. The investment can also promote products and services that contribute to resource efficiency and the use of sustainable materials.
The sustainability investment objective targets the following SDGs: 8, 9, 12, 13
Sustainable cities and infrastructure
The Sub-Fund will make investments that provide or support infrastructure and properties for the sustainable society. The investment can also offer services and products for sustainable renovation, maintenance and development of properties and infrastructure. The investment can also contribute to mobility.
This sustainable investment objective targets the following SDGs: 7, 9, 11, 13
Sustainable finance
Investment in sustainable banking, finances or insurance services. The investment can also contribute to sustainable payment solutions and credit services.
This sustainable investment objective targets the following SDGs: 1, 8, 16, 17

For an investment to be defined as sustainable, it must contribute to one of the SDGs targeted by the Sub-Fund’s sustainable investment objectives. Furthermore, for an investment to be considered sustainable, such investment may not cause significant harm to any environmental or social sustainable objective and the investee company must follow good governance practices, in particular with respect to sound management structures, employee relations, remuneration of staff and tax compliance.

As part of the Sub-Fund’s investment strategy to attain its environmental and social characteristics, the Sub-Fund intends to partially make sustainable investments with environmental objectives that do not qualify as environmentally sustainable under the EU Taxonomy. These other environmental objectives include investments in economic activities that are not in scope of the EU Taxonomy or investments that are in the scope of the EU Taxonomy but where data is not available. For these investments, the Investment Manager conducts an assessment to insure that the investments contribute to an environmental objective within one of the sustainable investment objectives of the Sub-Fund. These investments offer products or services that promote or enable resource and energy efficiency, innovative raw material use, prevent emissions to air, land or water, or otherwise contribute to a reduced impact on the climate or the environment or benefit biodiversity and ecosystem services.

The Investment Manager aims to integrate a consideration of environmentally sustainable economic activities as prescribed by the EU Taxonomy. However, it is currently not possible to determine how and to what extent the Sub-Fund’s underlying investments take into account the EU criteria for environmentally sustainable economic activities. Considering this, the Sub-Fund has set the minimum share of underlying investments aligned with the EU Taxonomy equal to zero for the time being.

The Sub-Fund also intends to partially make sustainable investments with social objectives which contribute to a social perspective or benefit. An investment with a social objective contributes to combating inequalities or social cohesion, social integration, enable socially disadvantaged groups, education and the labour market, or aim to promote health or medical development.

The Investment Manager assesses each sustainable investment to ensure it does not cause significant harm to any environmental or social sustainable investment objective, including climate, biodiversity, water, human rights, social conditions or employees. The nature and extent of the adverse impact on sustainability factors can vary depending on sector affiliation, region, business type and financial instrument. The Investment Manager also evaluates whether the investee company has identified and manages its sector and company specific adverse impacts. The assessment is made by using qualitative and quantitative information from the investee company and external data providers.

As part of the investment process the Investment Manager assesses the adverse impacts on sustainability factors of each investment to ensure it does not cause significant harm to any environmental or social sustainable investment objective, including climate, biodiversity, water, human rights, social conditions or employees. The scope and character of the adverse impact on sustainability factors can vary depending on sector affiliation, region, business type and financial instrument. The Investment Manager also evaluates whether the investee company has identified and manages its sector and company specific adverse impacts. The assessment is made using qualitative and quantitative information from the investee company and external data providers.

The assessment to ensure that the sustainable investment does not cause significant harm to any sustainability objective Is made prior to new investments and through annual reviews to follow up on the investments. Eventual non-conformance issues are managed in line with Norron’s principles for shareholder engagement.

The Investment Manager considers the following indicators for adverse impact on sustainability factors for the Sub-Fund:

GHG emissions
Carbon footprint
GHG intensity of the 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 and radioactive waste ratio
Violations of UN Global principles and 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 (anti-personnel mines, cluster munitions, chemical weapons and biological weapons)

In addition, the Investment Manager has identified two additional principal adverse impact factors which are considered:

Investments in companies without carbon emission reduction initiatives
Lack of anti-corruption and anti-bribery policies

The Investment Manager makes an assessment on each sustainable investment to ensure compliance with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, including the principles and rights set out in the eight fundamental conventions identified in the Declaration of the International Labour Organisation (ILO) on Fundamental Principles and Rights at Work, The eight ILO Fundamental Conventions and the International Bill of Human Rights.

An investee company is considered to be compliant with these minimum safeguards if they can show policies and compliance programs which are acceptable with regard to the size and nature of the business. The Investment Manager makes an updated assessment at least annually on each sustainable investment.

The assessment on adverse impacts and compliance with minimum safeguards is made prior to new investments and through annual due diligence for each respective sustainable investment. Eventual non-conformance issues are managed in line with the Investment Manager’s strategies for engagement.

Environmental or social characteristics of the financial product

The Sub-Fund promotes both environmental and social characteristics. The environmental and social characteristics are promoted through the Sub-Fund’s investments in investments in equity and bond instruments. To achieve the environmental and social characteristics the Sub-Fund will partially make sustainable investments against five sustainable objectives which are based on the SDGs. For all investments, the Sub-Fund will use negative screening of assets and exclude industries from the investment universe that the Investment Manager considers to be associated with material sustainability risks, as well as apply an active management philosophy and strategy with respect to sustainability factors. The sustainability work of the Sub-Fund aims to contribute to the SDGs and the 2030 Agenda, comprising both social and environmental characteristics.

The environmental and social characteristics in the 2030 Agenda and the 17 SDGs are promoted by a combination of different methods in the investment strategy:

Partially making sustainable investments contributing to the achievement of the 2030 Agenda
The Sub-Fund partially intends to make sustainable investments contributing to the achievement of the 2030 Agenda and the 17 SDGs. Sustainable investments are investments that (i) by provision of its product or services contribute to the SDGs and as such one of the Sub-Fund’s sustainable investment objectives, (ii) not cause significant harm to any environmental or social sustainable investment objective, and (iii) comply with good governance practices. The sustainable investment objectives are: Climate and environment, Healthy and prosperous society, Innovative and sustainable solutions, Sustainable cities and infrastructure, and Sustainable finance.
Negative screening of assets
The Sub-Fund uses negative screening of assets by excluding industries from the investment universe that the Investment Manager considers to be associated with particularly high sustainability risks and by its nature would risk to cause significant harm to the 2030 Agenda.

Active management and ownership strategy
The Investment Manager encourages investee companies to (i) become signatories and align their operations with the UN Global Compact principles on human rights, labour rights, environment and anti-corruption, (ii) commit to and set climate emission reduction targets in accordance with the Science Based Targets initiative, and (iii) disclose material sustainability risks in their annual and/or sustainability reports. The Investment Manager has a target to increase the share of investments that meets these criteria over time.

Investment strategy

Norron Select is a Nordic fund with an absolute return target. The environmental and social characteristics are promoted by the Sub-Fund’s investments in equity and bond instruments.

To attain the environmental and social characteristics the Sub-Fund intends to (i) partially make sustainable investments within the sustainable investment objectives targeting the SDGs, (ii) use negative screening of assets by excluding industries from the investment universe that the Investment Manager considers to be associated with significantly high sustainability risks and by its nature would risk to cause significant harm to the 2030 Agenda, and (iii) by applying an active management philosophy and ownership strategy with respect to sustainability factors.

Sustainable investments are investments that (i) by the provision of its products or services contribute to the SDGs and as such one of the Sub-Fund’s sustainable investment objectives, (ii) not cause significant harm to any environmental or social sustainable investment objective, and (iii) comply with good governance practices. For each sustainable investment the Investment Manager conducts a qualitative and quantitative assessment of the investment’s products, services and governance using both internal and external data, as well as using the 169 targets supporting the 17 SDGs. In order to determine whether an investment contributes to the SDGs and one of the Sub-Fund’s investment objectives, the Investment Manager conducts an extensive analysis of each investment. The process is reviewed and updated at least once per year.

The Investment Manager applies an active investment philosophy in its quest to generate sustainable and economic value creation for the shareholders of the Sub-Fund. The management strategy builds on active ownership, where a continuous dialogue and engagement is maintained with the companies in which the Sub-Fund invests. The investment manager engages with the investee companies, focusing on the core holdings in the Sub-Fund, with the aim of influencing the investee companies on sustainability and governance matters. The Investment Manager especially encourages the investee companies to become signatories to the UN Global Compact, set climate emission reduction targets aligned with the Science Based Targets initiative and disclose material sustainability risks in their annual and/or sustainability reports.

The Investment Manager has an overall target to increase the share of investments that meets these criteria over time.

The Investment Manager makes an assessment of each investee company to ensure compliance with good governance practices. Prior to an investment, the Investment Manager evaluates whether the investee company has a sound management structure, good employee relations, fair remuneration principles, anti-corruption policies, and complies with applicable tax laws. Regular assessments, due diligence and annual reviews are made for each investment.

The exclusion criteria for the Sub-Fund are the following:

– Pornography
Production: 0 % of turnover
Distribution: maximum 5 % of turnover

– Tobacco
Production: 0 % of turnover
Distribution: maximum 5 % of turnover

– Cannabis
Production: 0 % of turnover
Distribution: 0 % of turnover

– Alcohol production
Production: maximum 5 % of turnover

– Controversial weapons
Production: 0 % of turnover
Distribution: 0 % of turnover

– Conventional weapons
Production: maximum 5 % of turnover
Distribution: maximum 5 % of turnover

– Gambling
Production: maximum 5 % of turnover
Distribution: maximum 5 % of turnover

– Oil, gas and coal (fossil fuels)
Extraction: maximum 5% of turnover

Norron also excludes companies where it is publicly known or where we become aware that there is significant risk of corruption or financial crime, and companies where international standards have been violated.

Proportion of investments

A minimum share of 80% of the Sub-Fund’s investments will promote environmental or social characteristics. 35% of these investments will be sustainable investments with a social or environmental investment objective.

Monitoring of environmental and social characteristics

The Sub-Fund uses the following sustainability indicators to measure the attainment of the environmental and social characteristics:

Sustainable investments that contribute to the achievement of the 2030 Agenda and the SDGs
Negative screening of assets
Active management and ownership strategy

The Investment Manager intends to integrate a consideration of environmentally sustainable economic activities as prescribed by the EU Taxonomy. However, it is currently not possible to determine how and to what extent the Sub-Fund’s underlying investments take into account the EU criteria for environmentally sustainable economic activities. Considering this, the Sub-Fund has set the minimum share of underlying investments aligned with the EU Taxonomy equal to zero for the time being.

The Investment Manager also considers indicators for principle adverse impacts on sustainability factors.

The following indicators are measured and followed up:

GHG emissions
Carbon footprint
GHG intensity of the 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 and radioactive waste ratio
Violations of UN Global Compact principles and 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 (anti-personnel mines, cluster munitions, chemical weapons and biological weapons)
Investments in companies without carbon emission reduction initiatives
Lack of anti-corruption and anti-bribery practices

Methodologies

The Investment Manager makes an extensive qualitative and quantitative analysis of each investment based on the Sub-Fund’s sustainability indicators to assess and measure how the Sub-Fund promotes the social and environmental characteristics.

Sustainable investments contributing to the achievement of the 2030 Agenda and the SDGs
The Investment Manager measures the share of the Sub-Fund’s total net assets that are invested in sustainable investments, the allocation between the five sustainable investment objectives, and the share of environmental and social objectives. Each sustainable investment must contribute to one of the SDGs. The Investment Manager therefore uses the 17 SDGs as indicators to measure the contribution to the sustainable investment objectives. The minimum share of sustainable investments contributing to environmental and social objectives will not be less than 10% each of the Sub-Fund’s total net assets.

Negative screening of assets
The Sub-Fund’s investments are screened regularly to ensure compliance with the exclusion criteria. The indicators are the thresholds for each excluded industry which are set by the Investment Manager and controlled for each investment.

Active management and ownership strategy
The indicators used to evaluate the ownership strategy is the share of the Sub-Fund’s total net assets that is invested in investee companies that (i) are signatories to the UN Global Compact, (ii) has set emission reduction targets approved by the Science Based Targets initiative, and (iii) disclose material sustainability risks in their annual and/or sustainability reports.

Data sources and processing

The Investment Manager primarily uses data from the portfolio company’s annual and/or sustainability report, together with the complementing sustainability questionnaire published by the company, if available. In addition, the Investment Manager uses data from Norron’s ESG questionnaire that is sent out annually to all portfolio companies with the aim to collect comparable data from all investments.

To follow up the climate objectives of the investments, the Science Based Targets initiative’s database is used, and to measure the share of Global Compact signatories, the Global Compact database is used.

When assessing whether an investment contributes to one of the Sub-Fund’s sustainable objectives and to one of the SDGs, a qualitative and quantitative analysis is made using the company’s external communication and other publicly available information (ratings, audits etc.).

To ensure data accuracy and quality, the Investment Manager primarily uses first-hand data provided by the company. In case enough data is not provided, estimates from third-party sources may be used, but should be avoided to greatest possible extent. The share of data that is estimated will vary over time. All handling of data is done in the portfolio management system.

Limitations to methodologies and data

The process of measuring and reviewing how the Sub-Fund promotes social and environmental characteristics holds certain limitations, as some companies do not publish all the data required to conduct a complete analysis. Additionally, the basis of the analysis can vary between companies as there is currently no common standard for the reporting of all data. The Investment Manager is aware of these limitations and takes them into consideration when making a qualitative and quantitative analysis of each investment, which is to be documented. The reporting standards that are to be implemented will help facilitate this analysis, as many of the Sub-Fund’s holdings will be required to report in accordance with certain standards. However, the Investment Manager considers that the current limitations do not hinder the ability to promote environmental or social characteristics in the Sub-Fund, nor the aim to contribute to the SDGs and the achievement of the 2030 Agenda.

When first-hand data from the company is not available, estimates from third-party sources may be used. The Investment Manager is aware that the estimates may be inaccurate and therefore uses these with caution. The Investment manager always discloses the sources used in the analysis and reporting of data.

Due diligence

Prior to an investment, the Investment Manager conducts an extensive due diligence on each company that the Sub-Funds invests in. The due diligence process is documented in the portfolio management system and includes assessments against the Sub-Fund’s exclusion criteria and compliance with good governance practices. As part of this process, the Investment Manager controls and documents the company’s reporting and policies. Sustainability risks are considered in each investment decision.

For sustainable investments, the due diligence process also includes assessments to ensure compliance with minimum safeguards and that the investment does not cause significant harm on the environment, biodiversity, water, human rights, social conditions or employees.

An annual due diligence is conducted on all investments, with a particular focus on the company’s progress on its sustainability objectives. The company’s sustainability reporting, strategies, objectives and risks are used in this assessment. Additionally, KPIs are to be reviewed and an analysis on potential adverse impacts and sustainability risks relevant to the company is to be included. This process is also documented in the portfolio management system.

Engagement policies

The Sub-Fund applies an active management philosophy in its quest to generate sustainable and economic value creation for its shareholders. The ownership strategy is to follow a productive owner and engagement strategy, maintaining a continuous dialogue with the companies we invest in. By doing so, the Investment Manager can follow up and influence the sustainability work of the investee companies to ensure that it meets the requirements and expectations of the Sub-Fund. Ongoing interactions take place in the form of meetings with company representatives, conferences and workshops, meetings with third party analytics, case studies, and voting at general meetings on material matters.

As part of the duties of an Investment Manager, an important element is to represent the Sub-Fund in ownership issues related to share ownership in the investee companies. In every shareholder engagement, the Investment Manager is responsible for protecting the interests of the Sub-Fund’s shareholders and to maximize the sustainable and economic value for them.

The Investment Manager works together with the portfolio companies and follows a sincere owner and engagement strategy, maintaining a continuous dialogue with the companies we invest in. By doing so, the Investment Manager can follow up and influence the sustainability work of the investee companies to ensure that it meets the requirements and expectations of the Sub-Fund. Interactions take place in the form of meetings with company representatives, conferences and workshops, meetings with third party analytics, case studies, and voting at general meetings on material matters. The Investment Manager also participates in different sessions with the aim of increasing knowledge on the sustainability work of the portfolio companies.

Norron has a process for how work with the portfolio companies is to be structured. This includes gathering information about companies, documenting company interactions, screening against sustainability criteria, managing incidents in portfolio companies and designing and implementing an internal sustainability analysis. All sustainability data that we hold is stored in an ESG database. That way we can monitor the sustainability progress and risk of the portfolio companies in an efficient and structured manner. Additionally, we can easily identify the principal adverse impact factors for sustainable development in the funds.

Companies that the Sub-Fund invests in are analysed both prior to an investment and during the holding period. The analysis is built on the information that is gathered on an ongoing basis and on external analysis. In the ongoing analysis, sustainability factors are considered both for individual investments and on an aggregate fund level. This analysis then lays the foundation for whether an investment should proceed or be liquidated, and what measures may need to be taken in order to achieve the sustainable characteristics of the Sub-Fund.

In the case an incident occurs in one of the Sub-Fund’s investee companies, an assessment of the severity level is to be made.

If the incident is of low severity, the incident is to be documented for awareness purposes.
If the incident is of medium severity, the company is to be contacted for monitoring and follow-up.
If the incident is of high severity, the company is to be included on Norron’s ESG watchlist until the company has proven that the incident has been remediated and that there are processes in place to prevent similar future occurrences. In case the company does not take sufficient action in relation to the character and scope of the incident, the investment may be excluded from the investment universe.