As an active investor, NN Investment Partners (NN IP) is committed to investing responsibly, dating back 18 years with the launch of our first sustainable equity strategies. We strive to invest in environmentally and socially responsible ways.
Long-term value is built by more than just financial and economic factors. Environmental impact, climate change, corruption, human rights, health and safety, and corporate governance also have the potential to affect the long-term value of a company. Realising this, combined with our commitment to positively contribute to society, NN IP prioritises fully integrating environmental, social, and governance (ESG) factors into our investment process. We fulfil this goal by exercising our duties as an active investor, making use of our shareholder voting rights, supporting good corporate governance practices while at the same time striving for good returns for our customers.
NN IP has a four-pillar approach to Responsible Investing
The active ownership pillar reflects that ESG issues are raised when we meet companies in which we invest and we exercise our voting rights to demonstrate our longer-term orientation.
The ESG integration pillar highlights that ESG research is part of the work performed by mainstream equity and fixed income analysts, not just by a separate team. ESG factors are a key aspect of our assessments and decisions as whether or not to invest.
The pillar on restrictions comprises our policies of excluding certain types of business activities - such as the controversial weapon industry - in keeping with our business ethics and principles, societal values, and trends.
The final pillar describes the offer of a range of dedicated Socially Responsible Investing (SRI) strategies and tailor-made investment solutions in partnership with our clients.
This illustration is used to inform our clients about the pillars included in the investment approach of the subsequent funds.
Over the years, we expanded our Responsible Investing approach across all asset classes. We formalised our commitment to integrating ESG factors into our investment decisions for funds and mandates by signing the United Nation’s Principles of Responsible Investments (PRI) in 2008. In 2016, we expanded our sustainable solutions range through the launch of impact funds, both in equity and fixed income, as well as a sustainable multi-asset fund. This helped grow our assets under management in socially responsible investing (SRI) funds and mandates to EUR 5 billion in 2016, a 12% increase compared to 2015.
Green bonds are bonds whose proceeds are separated from general corporate purposes, and which are used exclusively for projects that have a clear positive impact on the environment. The NN Euro Green Bond fund, launched in February 2016, offers investors the opportunity to invest in these bonds. The fund’s strategy aims to ensure that investments are truly green by making an independent assessment of adherence to the Green Bond Principles. The NN green bond fund’s assets have grown to more than EUR 100 million today, and have been granted the LuxFLAG Climate Finance Label. With the grant of the quality label, investors can be confident that their investments help finance climate change initiatives.
Studies conducted with ECCE
In addition, NN IP increased the understanding of the materiality of ESG factors for investment returns through studies conducted with the academic institute, European Centre for Corporate Engagement (ECCE). The report, entitled ‘The Materiality of ESG factors for emerging markets equity investment decisions: academic evidence’, is the first comprehensive investigation into the performance of emerging market equity portfolios using ESG criteria. It found that the gains from investing in companies with higher ESG ratings are stronger in emerging markets than in developed markets, while ownership structures of companies is the most important corporate governance driver. Currently, a study is underway on fixed income and ESG integration. The results are being used to further strengthen ESG integration into our investment process.
Sustainable Development Goals
In 2015, the United Nations released the Sustainable Development Goals (SDGs), a set of 17 goals, with 167 specific sub targets, aimed at fostering the sustainable economic development. The SDGs are set for 2030, and relate to climate, poverty, health care, education, and other societal challenges.
They range from battling poverty (SDG 1) to providing clean and affordable energy (SDG 7). The SDGs have generated many investment discussions, but have resulted in limited investment action so far, as investors struggle with how to successfully balance investing with meeting the expectations of the SDGs.
Not all SDGs offer equal opportunity for investment, as not all of them offer clear investment opportunities, and reporting on their KPI’s is still too limited to rely on for such opportunities. That is why NN IP developed a pragmatic method of tagging companies’ contributions to SDGs with plusses, zeros, and minuses. This method is straightforward and is already being applied today to the NN Global Impact Equity Opportunities Fund, with currently available company data. The tagging approach allows NN IP to assess company exposure to SDGs and with that, the investment opportunities in SDGs.
NN IP’s tagging approach for assessing the Sustainable Development Goals (SDG) exposure to companies offers investors opportunities to choose stronger exposure to SDGs, and easier opportunities for impact investing.
Responsible Investment Team
In February 2017, NN IP established a new Responsible Investment team. The team’s primary goal is to drive the further development of Responsible Investing at NN IP, and support all investment teams in their ESG integration and active ownership strategies. With this NN IP is sharpening its focus on active ownership and engagement – factors in being a responsible investor. The team will report directly to Hans Stoter, Chief Investment Officer at NN IP.
Partnering with South Pole Group
NN IP has a fiduciary duty towards clients to invest in our clients’ best interests. Sound investment decisions start with having the right information. In line with this, understanding the carbon and climate exposure of investment portfolios is slowly becoming a housekeeping item within the financial industry. That’s why NN IP ensures its investment decisions are based on the best available information on carbon, waste, and water. We do this by partnering with the leading service provider in the market, South Pole Group. This pioneering step allows NN IP to gain accurate insights across all asset classes into the emissions intensity of companies and to meet the most detailed information requirements posed by clients. The use of other environmental data on water and waste enriches NN IP’s understanding of additional natural capital indicators, will allow us to make better informed investment decisions.