9 Our Responsible Investment Journey 2021 - Danske Bank
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Our Responsible
Investment Journey
2021
9
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2 Our Responsible Investment Journey 2021
Contents
Chapter 1 – Introduction
04 A paradigm shift for sustainability
06 A green reboot of the financial markets
08 Raising the bar with new sustainability target
Chapter 2 – Incorporating sustainability
10 Our blueprint for delivering investment value and sustainable progress
14 Taking sustainability in solutions investment products to the next level
16 Developing analytical tools to capture value
18 Rigorous sustainability assessment of external managers
20 Supporting the sustainable transition through index investments
22 Funnelling investments into the sustainable transition
24 Companies must adapt to climate trends
26 Companies expected to take social responsibility
28 Governance is a key issue when investing in developing countries
Chapter 3 – Active ownership
30 A challenging year and a turning point for sustainability
32 Company engagements in 2020
34 Corona crisis amplified focus on the green transition
36 Voting in 2020
38 Pushing companies to curb their climate impact
40 Voting guidelines need to reflect best practice
Chapter 4 – Screening and restrictions
42 Restricting investments with harmful business practices
44 Development of process to promote enhanced sustainability standards in investments
46 Tightened restrictions on activities that result in a significant negative impact on the climate
48 Introducing ‘Sustainability risk challenger’
Chapter 5 – Reporting and communication
50 Making sustainability more transparent
52 What are ESG and sustainable investment products?
4 Our Responsible Investment Journey 2021
A paradigm shift for sustainability
While sustainability has been high on SFDR product framework. By leveraging will not become green overnight, but we
society’s agenda for many years, the our deep sustainability expertise and will continue to influence their climate
outbreak of COVID-19 marked a new processes built up over the years and strategies and thus support the sustain-
era, with sustainability taking a quan- further improving our sustainability able transition. By remaining engaged,
tum leap forward as the cornerstone for structure in the past 12 months, we are we maximise our contribution towards
creating resilient societies and healthy able to offer a wide range of high-qual- making societies more sustainable.
lives. Meanwhile, the first part of the ity ESG investment products. Among
Sustainable Finance Disclosure Regula- other initiatives, we have introduced Collaborating to propel sustainability
tion (SFDR), a central plank of the EU’s a “Sustainability risk challenger” and forward
Action Plan for financing sustainable enhanced our investment restrictions The sustainable agenda is rapidly
growth, came into force in March 2021. framework and voting guidelines to help picking up speed, and with the rollout
SFDR ensures greater transparency on promote the environmental and social of the EU Action Plan and its various
the degree of sustainability incorporated characteristics of our products and regulations, we are fully focused on
into financial products, and its objec- to capture issues related to principal constantly improving our sustainability
tive is to ensure further transparency adverse sustainability impacts on efforts to stay ahead of the curve and
on sustainability risk considerations society. Moreover, we have reinforced be one of the best Nordics banks for
in the financial sector and investment our proprietary ESG analytical tool responsible investments. In the coming
products. COVID-19 and SFDR have mDASH®, so it supports product-spe- year, we plan to, for example, signifi-
been game changers for the financial cific sustainability characteristics. To cantly expand our product offering in
industry, setting a clear course for our ensure our products comply with the ESG and sustainable investments, set
ambitions for responsible investments extensive regulatory requirements and fully tailored and binding sustainability
and our efforts to create value for our honour the spirit of SFDR, we have cho- targets for products, and develop a
investors and society. sen a conservative approach to labelling framework for measuring our products’
our product according to their sustaina- contribution towards achieving the UN
A catalyst for sustainable change bility-related characteristics. Sustainable Development Goals.
Sustainability has been a guiding star At Danske Bank, we are truly
directing our investments for many The green transition is a top priority excited about the possibilities that lie
years and shaping our actions as a Climate change poses one of the big- ahead and look forward to collaborating
responsible investor. We therefore gest financial risks and threats to the with our investors, peers, policymakers
welcome the new EU regulation, as it well-being of global society. We have and other stakeholders in shaping an
feeds into our ambition of fostering sus- subsequently tightened our investment investment industry that advances
tainable change. To further advance our restrictions on thermal coal, tar sands sustainability and benefits society. By
efforts, we have set sustainability tar- and peat-fired power generation by joining forces with our investors and
gets that lay down a clear path for our lowering our revenue threshold from society, we can make it easier for inves-
commitment to help investors invest in 30 to 5 per cent, which is a further step tors to make sustainable choices.
products that promote sustainability or towards phasing out investments in
have sustainability objectives. We have these fossil fuels by 2040 at the latest
also set a target of having a net-zero and being a net-zero asset manager
greenhouse gas emissions investment by 2050. However, propelling society
portfolio by 2050 or sooner as part of towards a greener future is not only
our support for the Paris Agreement. about restricting companies. More
These targets underpin our ambition to importantly, it is about actively taking
contribute to decarbonising the econ- part in the change by influencing com-
omy and to enable capital to work for panies to shift from carbon-intensive
sustainable change. activities to more energy-efficient and
climate-friendly solutions. Climate was
High-quality products with a robust therefore at the top of our engagement
sustainability foundation agenda in 2020, when we through
In order to align with the objectives of dialogue with company management
SFDR, we have also adopted a new pushed for greener business models
Responsible Investment Policy and and the acceptance of a greater share Erik Eliasson
categorised our products according of responsibility for supporting the Head of Responsible Investments
to the disclosure requirements of the decarbonisation of society. Companies Danske Bank Asset Management
CHAPTER 1
Introduction
See our
Responsible
Investment Policy
here.
Our foundation for creating value
for investors and society
Our new Responsible Investment Policy is based on five principles that support our ambition to create attractive
return for our investors and contribute to positive and sustainable development.
Principle 1
We incorporate sustainability risks into investment analyses and investment decision-
making processes.
Principle 2
We are active owners and incorporate environmental, social and governance criteria as
well as sustainability issues into our ownership guidelines and practices.
Principle 3
We incorporate sustainability risk into advice on investment products, aim to identify our
investment customers’ sustainability preferences and seek to provide them with products
that meet their ethical and sustainability needs.
Principle 4
We report on our activities and progress towards implementing Responsible Investments
and disclose the impacts of our investments.
Principle 5
We promote the development of Responsible Investments across our industry.
6 Our Responsible Investment Journey 2021
A green reboot of the financial markets
Funding the transition to a low-carbon economy and the ambition of creating a sustainable
Europe requires a mobilisation of capital. This puts the financial sector front and centre and
subjects it to new regulation, with the goal of funnelling more capital into the green transition.
The European Commission has com- credentials of investment funds, and a underlines how important it is that
menced the implementation of its exten- new EU Taxonomy, which aims to define asset managers take responsibility and
sive Action Plan intended to transform ‘green’ economic activities for the first help steer investment capital towards
the financial markets in Europe. The time. The EU also plans to enhance the companies that make a real contribu-
objective is clear: to redirect capital flow sustainability requirements of invest- tion to achieving carbon-neutrality. We
into sustainable activities and so create ment advisory. at Danske Bank are committed to help-
a green and sustainable Europe. This “We welcome the ambition to create ing our investors invest in the sustain-
regulatory push is the most ambitious a uniform understanding and defini- able transition. By employing sustaina-
in many years and aims to encourage tion of sustainability and to set clear bility targets, we have set a clear path
investors to ramp up efforts to acceler- sustainability requirements for products for funnelling more capital into a green
ate the low-carbon transition, accord- if they are to be marketed on the basis future,” concludes Marjo Grandell.
ing to Marjo Grandell, Head of Liquid of their sustainability credentials. As
Investments. investor demand for products with sus-
“The EU Action Plan on sustainable tainability characteristics is expected to
finance stems from the EU’s commit- grow substantially in the coming years,
ment to channel private financial flows this incentivises the providers of invest-
into investments that support the Paris ment products to step up their sustaina-
Agreement’s target of a carbon-neutral bility efforts in order to remain relevant,”
economy by 2050 and, more broadly, states Marjo Grandell.
the United Nations Sustainable Devel-
opment Goals. The Action Plan address Helping to close the funding-cap
aspects such as climate change, pollu- The climate goals set for Europe are
tion reduction and biodiversity protec- ambitious and call for prompt action
tion,” explains Marjo Grandell. from all financial players to successfully
In her view, the legislative pro- complete the energy transition of our
gramme defines a much-needed economies, according to Marjo Gran- We at Danske Bank are
common language and increases dell. However, moving the transition
transparency and standards with regard forward requires funding. Indeed, the
committed to helping our
to sustainability. European Commission estimates the investors invest in the
investment deficit to be EUR 260bn sustainable transition. By
Incentivising a green path annually, i.e. EUR 260bn more needs to employing sustainability
The Action Plan is part of a wider sus- be invested annually between now and
tainable finance framework backed by a 2030 if we are to meet the 2030 goal targets, we have set a clear
broad set of new and enhanced regula- of reducing CO2 emissions by at least path for funnelling more
tions. These include a new Sustainable 40 per cent. capital into a green future.
Finance Disclosure Regulation, which “The massive need for reallocating
aims to better classify the sustainability investments to sustainable activities Marjo Grandell
CHAPTER 1
Introduction
The EU Action Plan explained
The Action Plan is the EU’s roadmap for creating a sustainable economy. It comprises multiple actions and legislative tools
designed to reorient Europe’s capital towards sustainable investments, ensure that sustainability risks are integrated into the
financial system and that long-term implications are considered. The various regulatory initiatives will be implemented over the
next couple of years.
GOAL
Help achieve the Paris Agreement Contribute to the UN Sustainable Development Goals
OBJECTIVES
Reorienting capital flow towards Mainstreaming sustainability Fostering transparency
more sustainable investments in risk management and long-termism
KEY ACTIONS
• E stablish a taxonomy of • B etter integrate sustainability • S trengthen corporate sustain-
environmentally sustainable in ratings and market research ability disclosure
activities • C larify institutional investors’ • Improve sustainable corporate
• C reate standards and labels for and asset managers’ duties governance; reduce short
green financial products • Incorporate sustainability in termism
• F oster investment in sustain- prudential requirements
able projects
• Incorporate sustainability into
investment advisory
• D evelop sustainability bench-
marks
SELECTED
Taxonomy Regulation Low-Carbon MiFIDII Amendments Disclosure Regulation
REGULATIONS
To be implemented in Benchmarks To be implemented in First part implemented
2022 and 2023 Implemented in 2020 2022 10 March 2021
The EU taxonomy is a clas- This introduces two This obliges investment
sification system defining low-carbon benchmarks managers to take into
minimum criteria that with predefined environmen- account their clients’ sus-
economic activities should tal, social and governance tainability preferences when
comply with in order to be disclosure requirements. assessing their investment
considered environmentally These are the “Climate Tran- objectives and providing
sustainable. The aim is to sition Benchmark” and the investment advice.
prevent “greenwashing” and “Paris-Aligned Benchmark”,
help investors understand which are intended to pro-
whether an economic activ- vide an investor-friendly tool
ity is sustainable. for comparative analysis of
carbon footprints.
Sustainable Finance Disclosure Regulation in a nutshell
The Sustainable Finance Disclosure Regulation SFDR achieves these objectives by imposing • Categorising products according to their
(SFDR) introduces and defines transparency new disclosure requirements on sustainability sustainability characteristics as set out in
requirements for financial product charac- in investments – it applies to both financial enti- the SFDR product framework. The two cat-
teristics such that they can be compared on ties and products. Requirements include: egories are: article 8 products (promoting
the basis of their degree of sustainability. Its environmental and/or social characteris-
phased-in implementation started on 10 March • disclosing how sustainability risks are tics) and article 9 products (sustainable
2021 and has two main objectives: incorporated into decision-making investment as an objective). In addition,
• disclosing whether the principal adverse disclosing how these products attain their
• To make it easier for investors to invest in impacts on sustainability factors that sustainability characteristics on websites,
products that support sustainable develop- investment decisions may cause are con- in pre-contractual agreements and in peri-
ment sidered (these are the negative effects on odic reporting.
• To prevent products from seeming more environmental, social or employee matters,
sustainable than they actually are and thus as well as on respect for human rights,
hinder “greenwashing” anti-corruption or anti-bribery that result
from an investment decision)
8 Our Responsible Investment Journey 2021 Raising the bar with new sustainability targets We have set targets for investments in ESG and sustainable investment products and have committed to supporting the goal of net-zero greenhouse gas emissions by 2050 or sooner. This will support our investors in investing in the green transition. To support society’s sustainability goals commitment to help investors invest promoting environmental or social char- and the low-carbon transition, we are in products that promote sustainability acteristics to DKK 400bn by 2023, raising the bar by launching concrete or have sustainability objectives. These corresponding to around three quar- sustainability targets for our investment goals are set in accordance with the ters of the assets currently under our business. To advance our efforts as a new Sustainable Financing Disclosure management. In addition, the goal is to facilitator of sustainable change, we Regulation (SFDR) product framework. funnel at least DKK 150bn into sustain- have set specific sustainability tar- Our short-term goal is that investors able investment products by 2030. gets that plot a clear direction for our increase their investments in products “For our investors, sustainability
CHAPTER 1
Introduction
Aspiring to help society reduce its
negative impact
In the long term, we are stepping up
efforts to support society’s ambition of
decarbonising the economy. Achieving
the climate goals of the Paris Agree-
ment requires corporates to shift their
business model from polluting technol-
ogies and products to more energy-effi-
cient and climate-friendly solutions. As
investors, we can play a significant role
We will continue our efforts in shaping tomorrow’s companies and Our investors increasingly
influencing them to reduce their climate evaluate the companies and
to strengthen and expand footprint. This is why we became a sig-
our ESG product shelf and natory of the Net Zero Asset Manager
products into which they put
innovate new sustainable Initiative, which represents a group of their money according to how
investment products. This
international asset managers commit- the companies contribute to
ted to supporting the goal of net-zero combating climate change
will advance our ambition greenhouse gas emissions by 2050
of becoming a facilitator for or sooner, in line with the Paris Agree- and other societal challenges.
sustainable change. ment’s target of limiting global warming Our new targets reflect this –
to 1.5 degrees Celsius. we want to make measurable
“As an investor and distributor of
Marjo Grandell efforts and progress in our
investment products, we have a vital
role in driving the low-carbon transition, offering.
thereby helping society achieve its cli-
Christian Heiberg
continues to gain in importance; a trend mate ambitions. By joining the Net Zero
that is advancing by the hour. They Asset Manager Initiative, we will bolster
increasingly evaluate the companies our climate efforts, and we will work
and products into which they put their in collaboration with our investment
money according to how the companies customers to set decarbonisation goals
contribute to combating climate change for all assets under our management,”
and other societal challenges. Our new concludes Thomas Otbo, Chief Invest-
targets reflect this – we want to make ment Officer at Danske Bank Asset
measurable efforts and progress in our Management.
offering, while at the same time aligning
with the new SFDR regulation,” says
We will set milestone targets for
carbon reduction in late 2021 to ensure DKK 400bn
Christian Heiberg, Head of Danske Bank progress on our net-zero commitment. in investment products that
Asset Management. promote environmental or social
characteristics by 2023
Enabling investors to invest in the
sustainable transition
To achieve our new sustainability
targets, we will expand our product
offering to cater to investor sustaina-
bility preferences, so they can choose
investment products aligned with their DKK 150bn
ambitions and goals. in investment products that have
“Setting measurable and ambitious sustainability objectives by 2030.
targets for our responsible investment
efforts is a central pillar for delivering
on investor expectations going for-
ward. We will continue our efforts to
strengthen and expand our ESG product As an investor and distributor
shelf and innovate new sustainable of investment products, we
investment products, which we expect have a vital role in driving the
to be able to offer in the near future. Investments aligned with
low-carbon transition, thereby
This will advance our ambition of
becoming a facilitator for sustainable helping society achieve its net-zero emissions
change,”states Marjo Grandell, Head climate ambitions. by 2050 or sooner.
of Liquid Investments at Danske Bank
Asset Management. Thomas Otbo
10 Our Responsible Investment Journey 2021 Our blueprint for delivering investment value and sustainable progress Sustainability is becoming more important for companies and for the investment community due to stricter sustainability-related regulations and increased investor demands for sustainable products. This brings new risks and opportunities for companies, making it important for us to analyse and assess how companies navigate the sustainable transition in order to choose the best possible investments for our investors. International societies have embarked sustainable solutions and products are face, making sustainability a key strate- on a journey to make economies more megatrends that influence companies gic business priority. sustainable. Stricter regulation on and thereby our investors. This devel- We believe it is paramount to companies, the Paris Agreement, the opment is disrupting business models capture these sustainability risks and UN Sustainable Development Goals and altering the risks and opportunities opportunities fuelled by the sustainable and consumers’ increased demand for that businesses and the financial sector transition, as this supports our ambition
CHAPTER 2
Incorporating sustainability
of protecting and growing our investors’ Addressing sustainability through ate if they meet international norms
assets. Incorporating sustainability a materiality lens and standards for corporate social
risks has been part of our investment Sustainability risks are systemati- responsibility, such as the UN Global
teams’ investment processes for many cally incorporated into the investment Compact and the OECD Guidelines for
years, and we continuously develop process of our entire product range. Multinational Enterprises (learn more
and enhance our sustainability analysis Investment teams identify and assess on page 44). In addition to incorporating
tools and infrastructures, so our invest- those sustainability factors that pose sustainability risks into the investment
ment teams are able to assess risks risks and could have a negative impact analysis, investment teams use active
and opportunities holistically and make on the return potential of investments, ownership, screening and restrictions
the best possible investment decisions. i.e. factors that are financially material. to address and mitigate sustainability
As part of that process, companies risks (learn more on pages 30 and
and countries are analysed to evalu- 42).
Utilising data to make better investments
Having a robust process for incorpo- matters. These include a company’s Learn more about the data platform
rating sustainability risks and quality labour and human rights practices, here.
investment products requires ESG a company’s carbon footprint from
data. We have therefore built a data their own operations,
platform consisting of more than products and supply
8,000 high-quality sustainability chains, board diver-
data points listing those sustaina- sity, anti-bribery, biodi-
bility aspects that are relevant and versity and deforesta-
critical for businesses and their tion policies, product
financial performance. The data safety, gender pay
platform currently comprises 11 gap, animal welfare
different ESG data sources, which and waste manage-
are used by our investment teams to ment processes.
assess how companies are address-
ing and performing on sustainability
mDASH® Identifying material sustainability
aspects with mDASH®
which sustainability aspects are noise’ and identify material sus-
important for individual compa- tainability aspects and assess how
Central to making sound nies from a financial standpoint. individual companies address and
investments is our invest- To ensure a systematic approach, manage those aspects. This enables
ment teams’ focus on sustain- we have developed our proprietary our teams to make better-informed
ability issues that are likely to analytical tool called mDASH (short investment decisions that can bene-
affect a company’s business and for materiality dashboard). The tool fit our investors.
ability to deliver attractive returns to organises and categorises data
our investors. This is called financial from companies and external data Learn more about mDASH® on page
materiality and is the focal point providers, so that our investment 16 and in our white paper here.
when investment teams analyse teams can cut through ‘information12 Our Responsible Investment Journey 2021
Sustainability analysis built on a platform and proprietary ESG analysis
robust foundation tool mDASH® to identify and analyse
Adding new features to our infrastruc- those sustainability factors that are
ture ensures investment teams capture likely to be business-critical for specific
relevant and material sustainability companies. In addition, our Responsible
aspects. This reinforces the environ- Investment team, consisting of ESG
mental and social characteristics specialists and analysts, supports our
of our products and enables us to investment teams across the Nordics
accommodate our investors’ current in deploying a systematic incorporation
and future sustainability preferences of sustainability factors. Moreover,
and values. For example, our invest- investment teams regularly undertake
ment teams leverage our ESG data training programmes to raise their
sustainability competencies, so they
can constantly improve and strengthen
their ability to incorporate sustainability Consumer preferences,
into the selection of investments. Many company operations and
of our investment teams have recently regulations are rapidly
completed the European Federation of
Financial Analysts Societies ESG Analy-
changing, spurred by increased
sis training programme. awareness of the impact of
By building robust sustainability climate change and global
processes, expanding ESG data and ambitions to push society in
developing analytical tools, we continue
to enable teams to systematically man-
a more sustainable direction.
age and mitigate the potential sustaina- These changes will most likely
bility risks of investments – and unlock accelerate even more going
investment opportunities spurred by, for forward, which is why we
example, a company’s ability to leverage
the low-carbon transition to grow their have a rigorous process for
Companies that fully business and achieve a competitive identifying climate-related
integrate sustainability into advantage. risks and opportunities.
their businesses can to a Double materiality Cecilie Hoffmeyer, Senior Portfolio Manager
greater extent use it as a It is in our DNA to take responsibility
business enabler and be better and contribute to making societies
more sustainable while creating
positioned than competitors prosperous and healthy lives. We
to create growth and are therefore mindful of not only how may cause. Applying this so-called
development. investment performance is affected double materiality assessment across
by sustainability factors, but also the our investment products – meaning the
Joel Backesten, Portfolio Manager material principal adverse impact on financially material topics that influence
society that our investment decisions enterprise value as well as topics mate-CHAPTER 2
Incorporating sustainability
We consider principal adverse impacts on sustainability factors
We consider the principal adverse impacts that our investment decisions may have on the sustainability of society. In
other words, investment decisions that have negative effects on sustainability aspects, such as environmental, social
or employee matters, or human rights, anti-corruption or anti-bribery issues. Adverse impacts are currently measured
via these indicators, which we seek to continuously expand:
• Greenhouse gas emissions
• Carbon footprint
• Greenhouse gas intensity
• Exposure to companies active in the fossil fuel sector
• Share of non-renewable energy
• Violations of UN Global Compact principles or OECD Guidelines for Multinational Enterprises
We use a wide range of tools, frameworks and data to identify the principal adverse impacts on sustainability factors.
These are also addressed through active ownership and we have, for example, incorporated the indicators into our
voting guidelines. In addition, we may exclude companies due to principal adverse impacts, and we have, for instance,
excluded certain companies that contribute significantly to climate change, damage biodiversity, violate human rights,
have insufficient labour rights or are involved in corruption.
Learn more about our processes for identifying and addressing principal adverse impacts on sustainability factors in
our full statement at danskebank.com.
rial to the economy, environment and corruption, bribery and other practices responsible investor, we engage with
people – is as an integral element of our harmful to sustainability. companies with the goal of solving the
investment business. We analyse and To address and reduce principal matter and thus mitigating a compa-
assess how a company addresses and adverse impacts we, for example, ny’s negative impact on society. This
tackles a series of sustainability issues, restrict companies involved in harmful underpins our ambition of mitigating our
ranging from carbon emissions, fossil products or behaviour, including weak negative impact on society, fostering
fuel exposure, waste levels to gender human rights or tax practices, car- change and helping our investors invest
diversity and due diligence over human bon-intensive business models, water in the sustainable transition while deliv-
rights and a company’s efforts to avoid pollution or corruption. Moreover, as a ering strong investment performance.14 Our Responsible Investment Journey 2021
Taking sustainability in solutions
investment products to the next level
Danske Bank Asset Management has a wide selection of so-called solutions investment
products that cater to the different needs of investors. These are multi-asset products
comprising actively and passively managed components, such as equity or bond funds, and
range from retail-friendly investment solutions like Flexinvest or Horisont to Global Portfolio
Solutions for investors with more sophisticated needs. We have asked Thomas Otbo, Chief
Investment Officer at Danske Bank Asset Management and Head of Solutions, to elaborate
on why and how sustainability and responsible investment practices are rooted in these
solutions products.
What is important from a we can deliver to our investors. This
sustainability perspective when it makes integrating sustainability into
comes to our solutions investment our investment processes important,
products? as it helps us make better-informed
Our sustainability approach is founded investment decisions and provide our
on materiality and having a robust investors with investment solutions
process for integrating sustainability capable of delivering competitive, long-
matters into all aspects of our solutions term performance. On the other hand,
products. This requires a well-developed we also have a responsibility as an
foundation of ESG data, tools and exper- asset manager to address the principal
tise – all of which we have developed in adverse impacts that our investments
recent years and which enables us to may cause. By having sustainability
derive investment value from sustaina- considerations ingrained in our solu- As Chief Investment Officer,
bility. As Chief Investment Officer, I am tions products we can promote sustain-
focused on utilising our infrastructure able development and make a positive
I am focused on utilising our
to ensure that sustainability is consid- impact. infrastructure to ensure that
ered throughout the entire investment sustainability is considered
process of our solutions products, from How will the new EU regulation throughout the entire invest-
asset allocation, selection of compo- change our solutions products?
nents or investments, to portfolio con- Coming EU regulations integrating ment process of our solutions
struction and risk management . In my sustainability aspects in investment products, from asset alloca-
view, it is paramount that every step of advisory mandate that as part of tion, selection of components
our process works to promote the same the advisory process we will have to
environmental or social characteristics match our investors’ sustainability
or investments, to portfolio
or achieve the desired sustainability preferences with the ESG character- construction and risk manage-
outcome while delivering strong invest- istics or sustainability objectives of ment.
ment performance. our products. This will necessitate the
Thomas Otbo
development of products with explicit
Why is sustainability important for ESG characteristics or objectives. We
these products have started to design these products,
On the one hand, sustainability aspects so we are ready to meet the needs of investors’ desire to invest sustainable is
have, like conventional financial factors, investors with an appetite for specific set to amplify in the coming years, and
an impact on the potential returns that sustainability themes. We believe that we are keen to develop a product shelf
Asset Portfolio Selection of Risk
allocation construction components management
Selection of Active Promoting sustaina- Sustainability
components ownership bility characteristics objectivesCHAPTER 2
Incorporating sustainability
Do all underlying components have
the same sustainability approach?
Solutions products often contain mul-
tiple components or multiple layers of
investment analysis and decision-mak-
ing. This is because a solutions product
commonly invests in portfolios or funds
(components) that are managed by sep-
arate investment teams with separate
investment processes and objectives.
This also means that the investment
analysis and investment decisions in a
solutions product are made from a top-
down perspective, where we assess the
investment strategy and sustainability
integration of the underlying compo-
nents, which might differ. Over the
coming year, we will include sustaina-
bility-related metrics or indicators in the
portfolio construction process in order
to have solutions products that clearly
promote specific environmental or
social characteristics or have tangible
sustainability objectives. This includes,
for instance, our proprietary mSCORE®
or carbon risk rating indicators. We will
also include pre-defined filters in the
selection of underlying components
to augment the selection process and
ensure sustainability-related aspects
are taken sufficiently into account in the
decision-making process.
Does active ownership play a role in
solutions products?
that caters to the various sustainability opportunities and the negative and pos- Active ownership is an essential part of
objectives of investors. itive impacts of these processes, which our products and is applied to manage
should support our ambition of creat- investment risks, maximise returns and
How will this be done in practice? ing attractive risk-adjusted returns for contribute to a positive impact on the
Incorporating ESG and sustainability investors. Sustainability considerations environment and society in general. We
aspects into solutions products involves often relate to long-term time horizons, subsequently ensure that challenging
many different layers and processes so we focus on including sustainability sustainability issues are addressed
that are much more complex compared aspects in the strategic asset alloca- through dialogue and voting in the
to integrating sustainability consider- tion as opposed to the tactical asset underlying companies as a means of
ations into a single actively managed allocation process. Consequently, we advancing sustainability standards. We
equity product. We are therefore are currently working on a number of exercise active ownership in solutions
factoring tailor-made sustainability initiatives aimed at further strengthen- products at different levels and ensure
considerations into the entire invest- ing the asset allocation process from a that our activities work towards the
ment process – from the allocation of sustainability perspective. This includes same objective. As a result, relevant
assets, construction of the portfolio and developing an analytical framework that active ownership efforts are in place
management of risk to active ownership makes it possible to include sustaina- in the underlying components and are
activities. bility factors in long-term capital market always logged, so we can monitor the
assumptions across asset classes, and activities and their impact on improving
Can you detail how sustainability developing a scenario analysis frame- sustainability performance. Moreover,
considerations are integrated into work and tools to identify those sus- we have developed voting processes
the asset allocation process? tainability risks and opportunities that and voting guidelines that ensure we
The asset allocation process is a can impact strategic asset allocation use our power to influence as an inves-
vital part of the investment process. targets and the investment universe. tor and vote on relevant and material
Depending on the investment strategy, Furthermore, we are also defining a sustainability proposals at the general
it determines how a product is exposed process that will improve our ability to meetings of companies in the underly-
to, for example, asset classes, regions, capture sustainability characteristics or ing components.
sectors, themes and factors. We objectives in our allocation of regional
consider material sustainability risks, exposures and sectors.16 Our Responsible Investment Journey 2021
Developing analytical tools
to capture value
Our analytical tool, mDASH®, is an important key enabler for us to meet the requirements of
the EU’s new sustainability regulation for financial products’ sustainability-related disclosures.
The Sustainable Finance Disclosure Sustainability Insights & Analytics at “mDASH® thus helps investment
Regulation (SFDR) is all about increas- Danske Bank. teams describe the manner in which
ing transparency on the sustainabili- In particular, mDASH® supports our sustainability risks are integrated
ty-related aspects of financial products. efforts to comply with the new regula- into the investment decision-making
It places a great deal of emphasis on tion in three specific areas: process by assessing the likely impact
describing our processes for managing of sustainability risks on financial
various sustainability characteristics in 1. Management of sustainability return and explaining the reasoning for
our investment decision-making. risks whether sustainability risk is deemed
“At Danske Bank, mDASH® is our The regulation requires sustainability to be material or not,” explains Antti
proprietary sustainability research risks to be managed and disclosed at Malava.
platform that enables investment teams product level. mDASH® explicitly iden-
to form a holistic view of companies’ tifies those industry-specific sustaina- 2. Promotion of sustainability
sustainability performance. mDASH® bility risks that are most likely to impact principles and practices
is therefore a key tool for complying the financial or operational performance SFDR contains a disclosure require-
with the requirements of the new SFDR of companies, and scores how each ment relevant to the promotion of envi-
regulation in terms of our investment individual company manages those risk ronmental and social characteristics for
decisions,” says Antti Malava, Head of exposures. article 8 products and demonstration of
All companies must have a viable business plan for embedding sustainability into
their operations, otherwise they risk a lack of refinancing opportunities for their
bonds. Simply put, a company’s sustainability strategy is a decisive component in
my selection of companies that I believe are positioned for long-term growth and
can deliver an attractive return.
Rikke Zink Secher, Senior Portfolio ManagerCHAPTER 2
Incorporating sustainability
sustainable investment objectives for 3. Management and disclosure of
article 9 products. adverse sustainability impacts
“We have developed robust screen- SFDR requires management and
ing processes that enable investment periodic disclosure of the adverse
strategies to ensure low exposure sustainability impacts of our investment
towards investments with a negative decisions. An important concept here is
impact on the climate or society as a principal adverse impacts (PAI).
whole and to ensure good governance “PAIs aim to capture the negative,
in investee companies. This means material effects of our investments
we address standards of corporate on sustainability factors. We are in
governance and sustainability within the process of integrating PAIs into
areas such as emissions, energy use, mDASH®, so investment teams can
biodiversity, water, waste, social and identify principal adverse impacts in the mDASH® thus helps invest-
employee matters, human rights as well investment decision-making process,”
ment teams describe the
as anti-corruption. mDASH® displays, says Antti Malava.
for example, which restrictions apply to Article 9 products have sustainable manner in which sustainabil-
specific companies and the reasoning investment as their objective. Meet- ity risks are integrated into
behind those restrictions,” points out ing this requirement necessitates a the investment decision-mak-
Antti Malava. framework that defines how economic
Furthermore, our portfolio managers activities contribute to an environmental
ing process by assessing the
can identify company-specific sustain- or social objective. Furthermore, article likely impact of sustainability
ability issues of interest and concern 9 products must ensure that such risks on financial return and
that they might want to address in their sustainable investments do not signifi- explaining the reasoning for
ongoing dialogue with investee compa- cantly harm any other environmental or
nies. mDASH® embeds this information, social objectives in the framework and whether sustainability risk is
including a portfolio manager evaluation meet minimum social safeguards. We deemed to be material or not.
of how a company has addressed a are now developing a robust article 9
particular issue, and hence allows us to framework, and mDASH® will incor- Antti Malava
track progress within areas of interest porate relevant data to describe and
and concern. measure such sustainable investment
objectives.
mDASH® in brief
010100010010100101011010100010011001
• To support our ambition of truly integrating sustainability into our
investment decision-making, we have developed our own analytical
00100101 0101000100101001010110
tool mDASH®.
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• mDASH® is a materiality dashboard that sources the best available raw
ESG data from company disclosures and a number of third-party data and
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ratings providers to form the basis for assessing what is material to the
companies we invest in. 0101
00010010100101011010100010011001001
• We can also transform scope and data inputs into a material sustainability
risk score for each company in our universe – this we term an mSCORE®,
001010101000100101001010110101000
which we have developed as one output from mDASH®.
1001100100100101 010100010010100101
• mDASH® helps us identify investment value in ESG data, make holistic
assessments and take ownership of our sustainability integration, thus
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supporting better-informed investment decision-making.
0101000
100101 1001010010101101010001001100118 Our Responsible Investment Journey 2021
We were keen to develop a more structured approach to monitoring existing
managers and selecting new investment managers, so we could attain a greater
understanding of their sustainability-related processes, activities and resources.
Mads Steinmüller
Rigorous sustainability assessment
of external managers
We collaborate with external investment managers around the world, and the EU’s new
Sustainable Finance Disclosure Regulation has created a need to strengthen these
partnerships. A new assessment framework has been developed that includes a review of
how external managers promote environmental or social characteristics or have sustainable
objectives for their funds.
Danske Bank’s ambition is to take a awareness about responsible invest- though the majority of the external man-
leading position and become one of ments in the Nordics is high, and that agers we collaborate with have strong
the best banks in the Nordics in terms investors are increasingly requesting sustainability processes, we decided
of responsible investments. The EU’s exposure to sustainability themes and to classify the funds as article 6 as of
recently adopted Sustainable Finance objectives. 10 March 2021 (non-sustainable).
Disclosure Regulation (SFDR) has However, all external managers are very
defined a new regulatory framework Assessing sustainability processes positive about the SFDR requirements
for investment funds, which must now In spring 2020, the Responsible and we are currently working with many
comply with a number of disclosure Investments team developed a new of them so we can market their funds
principles in order to be marketed as an assessment framework for all external as ESG or Sustainable investment
ESG fund or a sustainable fund. managers. As well as regular monitor- funds (article 8 or article 9 funds),” says
This also applies to externally man- ing by the Manager Selection team, Mads Steinmüller.
aged funds in the Danske Invest fund all external managers are sustainabil- Danske Bank’s ambition is that
universe. These are funds not managed ity-assessed annually to monitor and all externally managed funds should
by Danske Bank Asset Management evaluate their progress in working with become ESG or Sustainable funds. That
but other managers like Fidelity, Aber- responsible investments. ambition is aligned with our long-term
deen and NN Investment Partners. “We were keen to develop a more goal of having at least DKK 400bn
External managers are often used for structured approach to monitoring invested in funds that promote environ-
asset classes or geographies where existing managers and selecting new mental or social characteristic by 2023
they have specialist competences or investment managers, so we could and at least DKK 150bn in sustainable
are closer to the investment universe attain a greater understanding of their investment products by 2030.
than Danske Bank Asset Management. sustainability-related processes, activ-
“Across the Nordic region, we ities and resources,” explains Mads
service numerous investors, large and Steinmüller.
small, retail and business, who have a The assessment is rooted in the Dan- All external managers are
diverse set of values, preferences and ske Bank Responsible Investment strat-
needs. We have to ensure we are able egy, which focuses on sustainability Inte-
very positive about the SFDR
to serve our investors’ diverse needs gration, Active Ownership and Report & requirements and we are
with an attractive product range of Disclose. However, the assessment was currently working with many
responsible investments, regardless of updated after the SFDR regulation came of them so we can market their
whether they are investing in American into force and now includes a review of
high yield bonds or Chinese equities,” how external managers promote environ- funds as ESG or Sustainable
says Mads Steinmüller, who is Senior mental or social characteristics or have investment funds (article 8 or
ESG Specialist and part of Danske sustainable objectives for their funds. article 9 funds.
Bank’s Responsible Investment team. “We spoke to all external managers
He adds that the general level of about SFDR in the autumn, and even Mads SteinmüllerCHAPTER 2
Incorporating sustainability
Sustainability assessment of external managers
We assess how external managers integrate sustainability into investment decisions and continuously
discuss how their processes can be improved.
Sustainability Integration Active Ownership Report & Disclose
• ESG education, data & resources • Engagement approach • Strategy level reporting
• Material ESG risk/opportunities • Themes and topics • Firm-wide level reporting
in the investment analysis • Investor initiatives & collabora-
• Environmental/social character- tions
istics or sustainable investment
objectives
• Climate change risk mitigation20 Our Responsible Investment Journey 2021
Supporting the sustainable transition
through index investments
Two new climate benchmarks have been introduced as part of the EU Action Plan on
Sustainable Finance. These serve as tools for investors to actively align their decarbonisation
efforts in index investments with the climate targets of the Paris Agreement. We have already
started to help investors use these benchmarks as a means to strengthen their climate profile
while maintaining broad market exposure at a low cost.
Index investments are a central pillar market exposures while contributing to in the coming years, as many investors
in the investment strategy of many the climate goals of the Paris Agree- are seeking to reinforce and extend their
institutional investors in particular, ment? According to Jasper Riis, Head sustainability profile.
and many of these investors have high of Quant & Overlay at Danske Bank, the
ambitions when it comes to contributing two new climate benchmarks provide Advisory that moves sustainability
to the low-carbon transition and making an effective means of combining cli- ambitions forward
societies more sustainable. So how can mate ambitions with an attractive risk/ Our ability to successfully help inves-
investors successfully combine invest- return profile. The EU’s “Paris-Aligned tors transition their index investments
ing in low-cost indexes with attractive Benchmark” and the “Climate Transi- to the climate benchmarks is rooted in
tion Benchmark” can be leveraged by our own high sustainability ambitions,
investors to emphasise their climate insights, tools and know-how that we
action and create climate-resilient index have built up in recent years.
portfolios. “Our interests and sustainability
“Using the two benchmarks is a ambitions are aligned with our investor
forceful way to actively express your clients, and being a sparring partner
climate ambitions in index investments, and engaging in strategic discussions
which are passive by nature. Many are ingrained in our advisory. We have
investors, especially large institutional capabilities and access to extensive
investors, have committed to having ESG data and quantitative analytical
a net-zero investment portfolio by tools that many of our investors do not,
2050, and this allows them to carry and we closely collaborate with them
on investing in cost-effective index from the initial planning and assess-
portfolios, have a diversified investment ment phase to concrete recommen-
strategy with attractive return potential dations for the portfolio construction
The quantitative overlay and at the same time deliver on their and execution phase. In essence, we
ensures that investors are in sustainability targets and promises to leverage our deep sustainability exper-
the vanguard of supporting their boards and customers,” explains tise to tailor and boost our investors’
Jasper. climate profiles in their index portfolios,
society’s climate agenda. He adds that Danske Bank has exemplified by us being able to help
In my view, using the already assisted an institutional early-movers, such as the institutional
benchmarks clearly signals investor in implementing the “EU Par- investor wanting to be at the forefront of
an investor’s commitment to is-aligned Benchmark” in their global the climate agenda,” says Jasper, who
equity index portfolio, thus lowering adds:
redirecting its investments their carbon emissions by 50 per cent “We want to be a leading bank in
towards opportunities in the compared to the broad market index the Nordics on sustainability, and to
energy transition. and significantly reducing their annual drive the transition to net-zero carbon
carbon emission levels going forward. emission investments that is necessary
Jasper Riis. Jasper believes this trend will amplify to fulfil the climate targets of the ParisCHAPTER 2
Incorporating sustainability
Agreement. To achieve this ambition, help our investors funnel capital to fund are in the vanguard of supporting
we are building stellar investment advi- the sustainable transition. society’s climate agenda. In my view,
sory services, enhancing and expanding using the benchmarks clearly signals
our ESG data architecture and ana- Investments aligned with EU’s an investor’s commitment to redirecting
lytical tools and are fully focused on sustainability targets its investments towards opportuni-
engineering investment solutions that From Jasper’s perspective, using the ties in the energy transition, broadly
EU’s climate benchmarks is a gateway encompassing products and services
to aligning index portfolios with the related to renewable energy and energy
EU Action Plan and its support of the efficiency,” explains Jasper Riis.
Paris Agreement climate goals as well To make it possible for investors
as complying with EU sustainability of all types to invest in the low-carbon
In essence, we leverage our regulations. transition, Danske Bank is currently
“By implementing these bench- exploring the possibility of using these
deep sustainability expertise to
marks, the index portfolio is aligned climate benchmarks in index prod-
tailor and boost our investors’ with the Sustainable Finance Disclosure ucts. This will enable us to offer index
climate profiles in their index Regulation, and we automatically adjust products that meet the sustainability
portfolios the portfolio if regulators adjust the requirements set out for article 8 and
benchmark requirements. The quanti- 9 products in the Sustainable Finance
Jasper Riis. tative overlay ensures that investors Disclosure Regulation.
What are the EU’s climate benchmarks?
The two benchmarks provide a robust and consistent framework for investors to incorporate specific objectives related
to greenhouse gas emission reductions and the transition to a low-carbon economy through the selection and weighting
of underlying investments. The benchmarks are predicated on the Paris Agreement target of limiting global warming to
ideally below 1.5°C by the end of the century, and the goal is to help further mobilise and move investor capital towards
activities that contribute to fighting climate change.
E
U Climate Transition E
U Paris-Aligned
Benchmark Benchmark
Minimum carbon intensity 30% 50%
reduction compared to
investable universe
Baseline exclusions Excludes companies involved in:
• Controversial weapons • Violating social norms
Activity exclusions None Excludes companies with:
• Coal revenue of more than 1%
• Oil revenue of more than 10%
• N
atural gas revenue of more than
50%
• H
igh carbon-intensity electricity
producers with more than 50%
revenue from production emitting more
than
100g CO2 e/kWh
Year-on-year self-decarbo- At least 7% on average per annum: in line with or beyond the decarbonisation
nisation of the benchmark trajectory from the UN’s Intergovernmental Panel on Climate Change 1.5°C scenario.
Exposure constraints Minimum exposure to sectors highly exposed to climate change issues is at least
equal to equity market benchmark value.You can also read
