By Hamlin Lovell, NordicInvestor 

Stine Lehmann Schack is the Head of Frameworks & Governance team in Responsible Investment at Danske Bank Asset Management with extensive experience in responsible investing and implementation of legislative initiatives from the EU Sustainable Finance Plan that are impacting asset managers.

Danske Bank Asset Management has a large team of more than 20 investment professionals and ESG Analysts working in its Responsible Investment team, which includes five specialized sub-teams focused on active ownership, insights and analytics, climate and nature, advisory capabilities and concepts, and frameworks and governance.

“In relation to the frameworks & governance team, our ambition is to ensure that we continuously develop and maintain our framework and strategy infrastructure for responsible investments to enable an ambitious, broad and scalable offering, which caters to the different sustainability preferences of our customers,” says Schack.

Double Materiality

Danske Bank Asset Management’s  approach to responsible investing is anchored in double materiality. “We integrate sustainability factors for considerations relating to risk and investment performance, and to screen and address the negative or positive impacts that our investments may have on society. We start with  the fiduciary duties we owe to customers, while seeking to address sustainability-related impacts in line with customer expectations.” explains Schack.

“Our disclosures and reporting around how we approach these aspects have increased as a result of the disclosure-initiatives issued under the European Commission’s Action Plan on Sustainable Finance, including in particular the Sustainable Finance Disclosure Regulation (SFDR) thatcame into force 2021,” she explains.

“SFDR disclosure requirements demand a dual focus on transparent investment performance and risk from a sustainability and impact perspective. ESG commitments and dimensions have to be well integrated and disclosed. Double materiality also feeds into corporate sustainability reporting under CSRD (the EU’s Corporate Sustainability Reporting Directive), which includes double materiality risks for our organization as well as our impact on society,” she continues.

Dynamic sustainability policies

Politicians, regulations, society and customers can all change priorities. “We stay dynamic to best manage the climate transition and other sustainability-related topics, while focusing on developing our approach in line with the expectations and building on the foundation at which work,” says Schack.

The SFDR framework leaves Danske Bank Asset Management and other investors with latitude to define own policies. Asset owners and asset managers have considerable discretion to define their E and S priorities, DNSH (Do No Significant Harm) and good governance approach under SFDR. “The regulations demand transparency but do not prescribe exact criteria,” points out Schack.

Fund naming and ESG strategies

When it comes to product names Schack finds the rules are clear with new guidelines from the European Supervisory Authorities on “Fund Names Using ESG or Sustainability Related Claims”. Danske Bank Asset Management has taken a conservative approach in relation to fund naming due to various sensitivities. “According to new naming guidelines, only investment funds investing meaningfully in sustainable investments can be named as sustainable. Within Danske Bank Asset Management, we have already at an early stage taken the decision to reserve the name “sustainable” for investment products categorized under Article 9. We do not use the word in the name of other investment products”.

There are large variations in how asset managers integrate sustainability dimensions in investment products. Some investment products are focused on broader sustainability objectives through exclusions. Others will consider a range of ‘E’ and ‘S’ objectives by inclusions, as measured by e.g. the activities of investee activities, consideration of operations, and some also factor in benchmarking to industry peers. Also, others may favor active ownership as a measure to integrate sustainability dimension.

Danske Bank Asset Management’s sustainability approach does not fit into one simple box. “Our approach is quite multi-dimensional, including exclusion criteria, inclusion criteria and active ownership which we integrate in investment management processes in line with the strategies defined for the investment products,” says Schack and continues “We have high ambitions and disclose our approach”.

Exclusion list

Exclusions are a dynamic area that need to be constantly reviewed, adapted and adjusted in terms of approach and methodologies. “Data coverage and methodology changes have a large impact on the number of companies that are excluded in different categories. The criteria are regularly reviewed,” says Schack.

Geopolitics does impact what is excluded. “When Russia invaded Ukraine our Responsible Investing Committee decided to exclude all Russian bonds and related investments. This shows how we, our customers and politicians continuously adapt our approach. Of course, the war has also increased focus on the energy crisis and emphasized the need to stay invested in the energy transition and in time limit dependencies on fossil fuels. Other conflicts may prompt additional screens and safeguards, but not necessarily result in cross-cutting exclusions” says Schack.

Voting and engagement 

Proxy voting and company engagement are increasing with more people devoted to these activities. In Danske Bank Asset Management, the approach is structured around the Active Ownership Instruction with guidelines for engagement and voting and related activity triggers. Engagements are performed through individual or collaboration engagements with initiatives such as Climate Action 100 Plus.

Carbon reporting and transition

Danske Bank Asset Management reports carbon emissions of its investments through voluntary initiatives on climate reporting, such TCFD and CDP, as well as in accordance with regulatory frameworks, including the Principal Adverse Impact (PAI) statement under SFDR.

Schack shares the consensus view that Scope 3 carbon emissions are less widely reported and less consistent: “We generally need to source data from companies to report it or rely on estimations. Less companies are reporting Scope 3. The data quality for Scope 1 and 2 data is better”.

Global harmonisation of data and reporting

Reported data from companies is raw data. Data sourced from data vendors is a mixture of raw data, collected through a mix of methods such as company reports and web scraping, and estimated/modelled data. “We also use our own models to analyse both corporate and vendor data,” says Schack.

Regulatory requirements are driving data and reporting improvements as data providers cater for market needs.

“We expect to see some more harmonization, but not complete harmonisation. We would like to see harmonization of data and reporting standards also at a global level. In fact, European initiatives such as CSRD are inspired by global initiatives, such as TCFD. The problem is that most of these are voluntary, and the EU is much further along than for example the US,” says Schack.

Taxonomy data challenge

The taxonomy presents special data challenges. “As company reporting improves it should be easier to track alignment as an investor. However, current developments in relation to the Omnibus Directive and loosening of companies’ reporting obligations may have an impact on this,” points out Schack.

Climate targets

Danske Bank Asset Management joined the Net Zero Asset Manager Initiative in 2020 and have set Net Zero targets. “There are interim targets for 2025 on engagements and as well as emission targets for 2030. We report our progress to these targets in Climate Action Progress Report for Danske Bankand have set high ambitions in relation to transparency around these aspects,” says Schack.

This article will feed into NordicInvestor’s upcoming special report on Sustainable Investing