By Hamlin Lovell, NordicInvestor
Nordic Investor interviewed Danske Bank’s Global Head of Sustainability and Impact Investing, Ulrika Hasselgren, to find out about the firm’s growing suite of internal and external ESG analytics.
HL: When did Danske Bank begin ESG investing and what have the key milestones been?
UH: Danske Bank has provided screened products and customized solutions to our customers across the Nordic region for many years. However, in early 2018, we developed a new sustainable investment strategy and started to implement it the same year.
The strategy, which we call ‘ESG Inside’ is a bottom-up approach based on a foundation of data, a focus on materiality, holistic assessments, and fund-manager-driven dialogue. We believe that considering material ESG matters alongside financial factors can help us make better-informed investment decisions. To support this, we have developed a proprietary materiality tool, mDASH, that helps our investment teams navigate through the volumes of ESG data and identify what is material information about their investments.
Our investment teams are the ones best equipped to assess and address investment risks and opportunities including those related to sustainability and ESG matters. Our portfolio managers are also the change agents who can influence and contribute to improvements through their active ownership and dialogue. It is in our role as investors we believe we can have the most impact.
In addition, we have strengthened our screening tools to apply set criteria and thresholds based on a number of values and preferences to which we can provide products and solutions that fit with customers who wish to restrict certain investments.
Last, not least we have developed our active ownership processes through the implementation of Voting Guidelines, clarifying voting scope and improving our disclosure and reporting capabilities.
HL: For ESG integration, how do you balance out external data with internal analytics? What is your view of the low correlations between ratings from the different ESG ratings agencies?
UH: Sustainable investments are heavily data dependent. ESG integration, active ownership and screening require access to high quality and reliable ESG data. The market for ESG data has grown exponentially over the past 10 years, underlining the growing demand but also the non-standardized and chaotic nature characterizing this data. Different data providers’ domicile, home market characteristics and scope are reflected in their different methodologies and ratings. We have chosen to take an agnostic view and seek to find quality data that supports our ambition to understand what is material and meaningful to our investments rather than relying on anyone rating or scoring system. Our ESG data platform therefore contain multiple data sources to grasp and cater for different needs concerning a portfolio, philosophy or asset class.
We have also developed mDASH, our proprietary materiality dashboard, which structures and decodes ESG data based on its material impact and relevance to companies within their sectors. mDASH is one of several tools used by our investment teams to integrate ESG into their respective investment processes and decision-making, while also identifying data gaps, errors or subjective assessments.
HL: You use seven external data providers. Can you disclose their names and/or describe the type of data they provide?
UH: We use a wide range of external data providers based on our approach, and we monitor the evolving landscape of data and solutions providers, and consider changes and improvements as we progress in our ways of working. Today, we subscribe to data from the following providers (in alphabetical order): Arabesque, CDP, ISS, Maplecroft, MSCI, Reprisk, SASB, Sustainalytics, Trucost, TruValue Labs.
HL: Do you think that Danish investors approach ESG differently from Swedish, Norwegian and Finnish investors? Does your policy apply consistently to your teams in Denmark, Sweden, Norway and Finland or are there any differences?
UH: Sustainability is embedded in a majority of investors’ policies and procedures across the Nordic countries today. Having said that, each country has its distinct culture and characteristics, which can show some differences mainly regarding ethical values and preferences. In Danske Bank, our focus on robust processes with ESG Inside covers all our investment teams; hence, we apply our approach consistently. Having said that, our approach is not a one size fits all, as its application will differ depending on strategy, philosophy and asset class. With our ESG Inside foundation, we cater for customers’ different needs and preferences, by also applying customized criteria for our products and solutions.
HL: You currently exclude companies in three main industries: tar sands, thermal coal, controversial weapons, and tobacco. Do you expect you may add other industries over time?
UH: Danske Bank Group has, based on its sustainability positions on Climate Change and the Arms & Defense industry, decided on restrictions in certain companies involved in tar sands, thermal coal, and controversial weapons.
In addition, we restrict investments into tobacco companies with revenues exceeding 5% from tobacco products for all our funds. This is in response to our Nordic customers, who view tobacco as one of the ‘least preferred’ sectors to be invested in.
HL: For macro investing, do you exclude any currencies or government bonds? Is this something that could change in future?
UH: Danske Bank does not invest in government bonds issued by countries subject to EU or UN sanctions, related to financial measures.
HL: Your 2019 Sustainable Investment Policy applies across all asset classes, but does not currently apply to derivatives. Both Eurex and CME Group now offer ESG equity index futures. Would you consider using ESG equity indexes in future?
UH: Yes, there is nothing that would limit our possibility to use such indexes.
HL: Can you realistically apply impact investing to all strategies and asset classes?
UH: It depends on how you define impact investing. Our focus is on ESG integration and active ownership, and we regard active ownership as one of the most effective mechanisms to manage risks, maximize returns and contribute to positive impacts on society and the environment. Hence, applying this across our investment processes we believe we can have the impact and we have started to track and monitor progress.
HL: What percentage of your investee companies are reporting carbon emissions? Do you report this onto investors? Is it level 1 and level 2 data, or also level 3?
UH: We report on our funds’ carbon footprint (Scope 1 and 2) where there is available company emissions data.
HL: In proxy voting, in 2019 you voted against 163 proposals. Can you give any examples?
UH: We have full disclosure on our website on how we vote. For 2019, items where we most commonly voted against management recommendation included compensation and election of directors.
HL: Does your engagement and voting apply only to direct investments, or also to external managers? Would you give external managers your guidelines on engagement and proxy voting, or let them apply their own policies?
UH: Danske Bank votes for all of its own investment strategies and for those managed by external managers but labelled Danske Invest. For all other external investment strategies distributed through Danske Bank, the managers exercise ESG integration, active ownership, screening and restrictions based on their own policies.
HL: To what extent are you monitoring companies’ responses to Coronavirus as part of your ESG policies? What are examples of “good” and “bad” corporate behavior? Are you actively engaging with companies on their responses to the Coronavirus?
UH: We are currently not targeting companies specifically concerning the Coronavirus. Having said that, we know that the quarantines and restrictions are not at all cost free, stocks are setting new lows daily, risk aversion is high, and markets and countries are challenged. Hence, many companies are and will be affected, and our investment teams consider these current and future impacts.