When Storebrand first established a sustainable investment team in the mid-1990s, ESG investing still represented largely uncharted territory, with little external data available. In 2001, when the Storebrand pension scheme (which still represents more than half of Storebrand Asset Management’s EUR75 billion AuM) decided to move the entirety of its portfolio towards ESG principles, many investors still rejected the notion that responsible investment was synchronous with maximising risk-adjusted return.
“We’ve always tried to challenge the boundaries of what’s possible, tried to innovate, tried to use our initiative,” says Executive Vice President Jan-Erik Saugestad, who joined the firm in 1999 and became CEO in 2015. “Sustainability is not a static undertaking: our approach is constantly developing and being revised.”
The most substantial progress in recent years has revolved around supporting ‘solutions’ to ESG challenges – formerly the domain of niche thematic strategies but now a mainstream concern in public as well as private markets.
Saugestad recently sat down to discuss the latest changes and future developments, amid a COVID-19 backdrop which is already throwing the ‘S’ of ESG into the spotlight.
How has Storebrand’s approach to ESG evolved over the years?
“When we started working on sustainable investing in the mid-1990s, our initial focus was very much around what we should not invest in: products that were deemed harmful by the UN, violations of the UN convention on human rights. We evolved from thinking about avoiding certain activities to avoiding certain risks. For example, bringing down our coal exposure meant that we had less exposure to the decline in energy prices.
Investing in ‘solutions’ has really evolved over the last five or ten years, as a more potent tool to contribute to the types of transition we’d like to see. This initially began with investments in niche funds, in private equity or public equity for instance, with strong thematic solution-oriented teams focused on very specific areas such as water. Now, however, investing in ‘solutions’ has become part of our broader investment portfolios.
The third leg of our ESG approach, which has been a focus for quite a long time, is engagement – our ability to work, especially with companies but also with regulators, politicians and others – to encourage the transition we want to achieve. The biggest impact can be achieved by getting the big companies to change, although divestment is appropriate if change doesn’t happen.”
You mention that investment in “solutions” has broadened out from niche thematic strategies to the broader investment portfolio. What’s behind that shift?
“To be honest, a lot of that is about the broadening opportunity in this space, across the public markets as well as private markets. There’s widespread involvement in areas such as green infrastructure. There’s a real transition of capital and a real repricing of risk for the more fossil-fuel-heavy investments. Asset managers have now created more scalable vehicles in what we’d call the ‘solutions’ area. For example, we have a low-carbon semi-passive product, which represents about 10% of our capital and has quite strong exposure to renewables and green infrastructure.
We think about “solutions” in four areas. The first is climate, where we see a lot more activity in renewable energy infrastructure, energy distribution, efficient energy usage and so on. The second is sustainable infrastructure, thinking about smart cities and so forth. The third is the circular economy, where there are a lot of business opportunities in the listed as well as the unlisted space. The fourth element is empowerment – bringing services to a wider audience at an affordable price, including healthcare, financial services, communications services and so on. Empowerment is a particularly big theme right now. We need to recover from the COVID downturn, and make sure as many people as possible can participate in that recovery rather than a widening of inequalities.”
How happy are you now with type and quality of ESG-related data that you’re able to obtain?
In the mid-1990’s we were trying to find and assess a lot of data ourselves. Today, the very widespread interest in ESG among investors and managers has led to the launch of a range of service providers offering information, such as sustainability ratings or raw data that we can use ourselves. The data isn’t perfect and some issues remain very hard to quantify, but it’s improving. What’s also improved is our approach – our ability to capitalise on that data, transform it, integrate it into the investment process.
One area where I do hope to see good progress in the coming years is on data that captures impact. To a certain extent we can measure that today, but it’s hard to do it thoroughly and in a way that’s transparent and understandable. In carbon reporting, for instance, it’s now getting easier to capture the carbon footprint of a firm’s business activity but much harder to understand how their products are used and what impact that has on overall carbon footprint. Impact, in general, is something we’re thinking more about. For example, when it comes to engagement, we’re trying to be much more explicit about what we’ve achieved – not the number of