Sustainability-related disclosures

Sustainability-related disclosures
Norron Sustainable Equity

Publication date: 2023-02-28

Summary

The purpose of the Sub-Fund’s sutainable investment objectives is to contribute to the achievement of the 2030 Agenda and the Sustainable Development Goals (SDGs). The SDGs include both environmental and social goals and the Sub-Fund will contribute to the achievement of each of these goals by its investments. Norron Sustainable Equity is an actively managed equity fund, investing principally in Nordic sustainable investments.

The Sub-Fund has four sustainable investment objectives: Climate and environment, Healthy and prosperous society, Innovative and sustainable solutions, and Sustainable cities and infrastructure.

Sustainable investments are investments that (i) by provision of its product or services contribute to the SDGs and as such one of the Sub-Funds four sustainable investment objectives, (ii) not cause significant harm to any environmental or social sustainable investment objective, and (iii) comply with good governance practices.

The Investment Manager uses 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 could risk harming the Sub-Fund’s sustainability objectives.

All of the Sub-Fund’s investments in equities and equity related instruments will be sustainable investments, which is equivalent to a minimum of 90% of the total net assets of the Sub-Fund. The sustainable investments will contribute to one of the sustainable investment objectives.

For all investments, the Investment Manager conducts an extensive qualitative and quantitative assessment of the investment’s activities in order to assess and measure how the investment contribute to the sustainability objectives of the Sub-Fund. In pursuing the sustainability objectives the Investment Manager uses binding elements when selecting investments for the Sub-Fund.

The indicators used to evaluate the Sub-Funds attainment of its sustainability objectives are the 17 SDGs. The Investment Manager is also to consider indicators for principle 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. In order to track Norron’s internal sustainability objectives, the Science Based Targets initiative’s and the Global Compact’s databases are 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 contributes to the social and environmental objectives. 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 Investment Manager applies an active management philosophy in its quest to generate sustainable and economic value creation for the shareholders of the Sub-Fund.

No reference benchmark has been designated for the purpose of attaining the sustainable investment objectives.

No significant harm to the sustainable investment objective

As part of the investment process the Investment Manager assesses 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. This assessment takes into account the investment’s potential adverse impact on sustainability factors and ensures the alignment with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human rights. The nature and extent of the adverse impact can vary depending on sector affiliation, region, business type and financial instrument.

The Investment Manager also evaluates whether the portfolio company has identified and manages adverse impacts of the investment. The assessment is made by using qualitative and quantitative information from the investee subject and external data providers.

The assessment of adverse impacts on sustainability factors is performed prior to new investments and by annual reviews to follow-up on the investments. The Investment Manager considers the following indicators for adverse impacts 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
Unadjusted gender pay gap
Board gender diversity
Exposure to controversial weapons (anti-personnel mines, cluster munitions, chemical weapons and biological weapons)

The Investment Manager makes an assessment on each investee company 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 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 if it 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 investee company.

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 through engagements between the Investment Manager and the issuer, with the aim of influencing the issuer on sustainability and government matters.

Sustainable investment objective of the financial product

The purpose of the Sub-Fund’s sustainable investment objectives is to contribute to the achievement of the 2030 Agenda and the Sustainable Development Goals (SDGs). The Sub-Fund has four sustainability objectives targeting the 17 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 with 169 underlying targets which aim to stimulate action in areas of critical importance for humanity and the planet. The SDGs includes both environmental and social goals and the Sub-Fund will contribute to the achievement of these goals by its investments.

The sustainability 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

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 sustainable investment objectives, the Sub-Fund intends to 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 scope of the EU Taxonomy but where data is not available. For these investments the Investment Manager conducts an assessment to ensure 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 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 Sub-Fund also intends to make sustainable investments with social objectives which contribute to a social perspective or social 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. The investment can also contribute to a more robust, inclusive and accessible society, or aim to promote health or medical development.

Investment strategy

The Sub-Fund’s investment objective is to make sustainable investments which contribute to the achievement of the 2030 Agenda and the SDGs. Norron Sustainable Equity is an actively managed equity fund, investing principally in Nordic sustainable investments.

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 sustainable investment objectives, (ii) not cause significant harm to any environmental or social sustainable investment objective, and (iii) comply with good governance practices. For all investments, the Investment Manager conducts a qualitative and quantitative assessment of the investment’s products, services and governance by using both internal and external data, as well as using the 169 targets supporting the 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.

In order to avoid investments that would risk significantly harming the Sub-Fund’s sustainability objectives, a risk assessment using both quantitative and qualitative factors is included in the investment process.

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 makes assessments to ensure that each issuer follow good governance practices. Prior to investment the Investment Manager evaluates to what extent each investee company follows sound management structures, employee relations, remuneration of staff, tax compliance and anti-corruption practices. Regular screenings, due diligence and annual reviews are conducted on each investment.

The Investment Manager uses negative screening of assets by excluding industries from the investment universe that the Investment Manager considers to be associated with significantly high sustainability risks that could potentially significantly harm the Sub-Fund’s sustainability objectives.

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

All of the Sub-Fund’s investments in equities and equity related instruments will be sustainable investments, which is equivalent to a minimum of 90% of the total net assets of the Sub-Fund. These investments will contribute to one of the sustainable investment objectives.

Monitoring of sustainable investment objective

The Sub-Fund will only make investments attaining the 2030 Agenda. The investments are selected for their contribution to the achievement of the 17 SDGs that underpin the 2030 Agenda, and each investment must contribute to one of the 17 SDGs. The Sub-Funds attainment of the sustainable investment objectives is measured by the investment’s allocation between each of the 17 SDGs, weighted according to the investment’s value of the total net assets of the Sub-Fund.

The indicators used to measure the Sub-Fund’s attainment of the sustainable investment objectives are the 17 SDGs:

No poverty
Zero hunger
Good health and well-being
Quality education
Gender equality
Clean water and sanitation
Affordable and clean energy
Decent work and economic growth
Industry, innovation and infrastructure
Reduced inequalities
Sustainable cities and infrastructure
Responsible consumption and production
Climate action
Life below water
Life on land
Peace, justice and strong institutions
Partnerships for the goals

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 investment aligned with the EU Taxonomy equal to zero for the time being.

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

The Investment Manager considers the following principal adverse impact indicators 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 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 conducts an extensive qualitative and quantitative analysis of each investment based on the Sub-Fund’s sustainability indicators to assess and measure how the investments contribute to the sustainable objectives of the Sub-Fund. The Investment Manager uses the following binding elements when selecting investments for the Sub-Fund:

The investment has to be compliant with the exclusion criteria applied for the Sub-Fund.
The investment has to contribute to one of the Sub-Funds sustainable investment objectives: Climate and environment, Healthy and prosperous society, Innovative and sustainable solutions, and Sustainable cities and infrastructure. Thus, in attaining the Sub-Fund’s sustainable investment objectives, each investment has to contribute to, or enable, the achievement of one of the 17 SDGs targeted by each sustainable investment objective.
The investment may not cause significant harm to any environmental or social sustainable investment objective and each investee company must follow good governance practices. Each investment is assessed prior to and during the holding period.
The Investment Manager applies an internal watchlist for its investments, which is used to track and monitor significant sustainability or governance related incidents in investee companies. The purpose of the watchlist is to prevent the Sub-Fund from making further investments in investee companies that are included on the watchlist.

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 ensuring that the investments do not cause any significant harm 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, compliance with good governance practices, compliance with minimum safeguards and ensuring that the investment does not cause significant harm on the environment, biodiversity, water, human rights, social conditions or employees. 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.

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 approach in its quest to generate sustainable and economic value creation for its shareholders. The ownership strategy is to follow a productive engagement strategy with the investee company, where a continuous dialogue is maintained. The Investment Manager engages with the issuer, focusing on core holdings in the Sub-Fund, with the aim of influencing the issuer on sustainability and governance matters. Engagements and interactions are carried out on an ongoing basis through meetings with company representatives, conferences and workshops, 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 objectives 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.

Attainment of the sustainable investment objective

The Sub-Fund’s sustainable objectives aim to contribute to the SDGs and the 2030 Agenda. The Sub-Fund has four sustainable objectives with the purpose to facilitate the attainment of the SDGs. The SDGs include both environmental and social objectives and the Sub-Fund will contribute to the achievement of these through its investments. Thus, in order to obtain the Sub-Fund’s sustainable investment objectives the Sub-Fund invests in companies that the Investment Manager deems to contribute to the attainment of the SDGs and the 2030 Agenda.

No reference benchmark has been designated for the purpose of attaining the sustainable investment objectives.