Policies and governance

Our Principal Adverse Impact - The "PAI" Statement

1. Summary

The following is the Principal Adverse Impact (PAI) Statement of Storebrand Asset Management AS (SAM) and its subsidiaries, Storebrand Fonder AB, Storebrand Fastigheter AB, Skagen AS, Cubera Private Equity AS, Capital Investment AS, Storebrand Asset Management UK Ltd, collectively referred to as the SAM Group. This statement is a requirement of the EU Sustainable Finance Disclosure Regulation.

When SAM assesses the principal adverse impacts on sustainability factors (PAI), SAM evaluates the assets managed on an entity level, with the exception of assets where data on PAIs are not available.

SAM continuously assesses any potential adverse environmental, social or governance impact from activities in investee companies. For companies with heightened risk of potential adverse impact, our Risk & Active Ownership team will make an in-depth analysis of the issue and decide on any further action, such as engagement or recommendation for exclusion. More information on our engagement process is found in our Sustainable Investments Policy.

Further integration and considerations of PAIs may take place at SAM's subsidiaries and specific funds.

This version of this document applies as of June 30th, 2021 (subject to approval at next Board meeting for Q3). The statement will be revised prior to Jan. 1. 2022, and thereafter, updated as needed.
 

2. Description of PAIs: Mandatory and voluntary PAIs

SAM will gather data and monitor the principal adverse impact of all mandatory as well as several additional indicators. This list will be reviewed at least annually and updated accordingly when access and quality of data improves. SAM already uses environmental, social and governance data in a sustainability rating and for other screening and engagement purposes, but it will now also be used specifically for the screening of principal adverse sustainability impacts. As all economic activity has some form of impact, we will use this screening to further identify and manage sustainability risks from our investments.
 

List of PAI indicators:

  • GHG emissions (Scope 1, 2, 3 and total)
  • Carbon footprint
  • GHG intensity of investee companies
  • Exposure to companies active in the fossil fuel sector
  • Share of non-renewable energy consumption and production
  • Energy consumption intensity per high impact climate sector
  • Activities negatively affecting biodiversity sensitive areas
  • Emissions to water
  • Hazardous waste ratio
  • Violations of UN Global Compact principles and Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises
  • Lack of processes and compliance mechanisms to monitor compliance with UN Global Compact principles and OECD Guidelines for Multinational Enterprises
  • Unadjusted gender pay gap
  • Board gender diversity
  • Exposure to controversial weapons (antipersonnel mines, cluster munitions, chemical weapons and biological weapons)
  • GHG Intensity
  • Social violations for sovereigns
  • Deforestation
  • Supplier Codes of Conduct


PAIs applicable for real estate investments

  • Exposure to fossil fuels through real estate assets
  • Exposure to energy-inefficient real estate assets
  • GHG emission generated by real estate assets
  • Energy consumption intensity
  • Waste production (Share of real estate assets not equipped with facilities for waste sorting and not covered by a waste recovery or recycling contract)

 

3. Description of policies to identify and prioritise adverse sustainability impacts

3.1 Action taken - methodology

SAM has been working to reduce adverse impact in its portfolios since the turn of the century and has identified the following as main adverse sustainability impact categories that applies to all equity and debt portfolios:

  • Adverse impacts affecting the environment and climate such as: severe environmental damage; Green House Gas emissions; biodiversity loss and deforestation
  • Adverse impact affecting workers, communities, and society such as: violations of basic workers' rights; forced labor; gender/diversity discrimination or indigenous rights violations
  • Adverse impact in connection with gross corruption and money laundering
  • Adverse impact in connection with controversial weapons (landmines, cluster munitions and nuclear weapons)
  • Adverse impact in connection with tobacco products

We have also identified some products as adverse impacts that we aim to avoid in all our funds such as coal or oil sands and others for some of our portfolios such as alcohol, gambling, and conventional weapons. These products are associated with significant risks and liabilities from a societal, environmental or health related harm. See our Sustainable Investment Policy for more detail.

SAM addresses these adverse impacts by using several combined strategies that involve:

a. Screening and excluding companies that do not live up to Storebrand's (minimum) investments standards based on international norms and conventions and/or companies that are involved in the production of certain unsustainable products.

b. Engaging with companies to discuss these adverse impacts with the aim to improve corporate behavior and thus reduce the adverse impact.

c. Integrating sustainability risk ratings in investment decisions to avoid or invest less in companies with high-risk sustainability rates and prioritize or invest more in companies with low sustainability risk.

Although principal adverse impacts (PAIs) are already being addressed and integrated in a general way by following the approach described above, SAM will be enhancing further integration for mitigation of PAIs, as outlined below.

For further information, see Storebrand's Exclusion lists. 

 

3.2 Policies on identification of PAIs

SAM has been identifying adverse impact in its portfolios for over a decade, and thus there is an overlap between PAI indicators and our general work carried out to mitigate risk. For information on our work identifying ESG risk please see Storebrand's Sustainable Investments Policy, Climate Strategy, Deforestation Policy , work on Biodiversity and Storebrand's Exclusion policy.

Regarding the identification of the specific PAI indicators, SAM will be monitoring these PAI indicators including the selected Additional Indicators on an ongoing basis as data becomes available from data providers.

Our methodology is to identify PAI laggards (red), PAI intermediate performers (yellow) and PAI leaders (green) so that risk can be avoided, and more capital can be allocated to more sustainable companies and solution companies.

RED: Those companies identified as PAI laggards will be further analyzed by the Risk and Active Ownership team and may result in exclusion depending on the risk and severity of the negative impact identified and the total cumulative negative impact identified across all PAI indicators.

YELLOW: PAI intermediate performers will also be further analyzed with the aim to mitigate adverse impact through engagement. Please see 3.3 Addressing of PAIs and Mitigation

GREEN: In addition, the analyzed PAI data will be further integrated in financial decisions with the aim to allocate more capital to PAI leaders, and thus lift the sustainability value of our funds. Please see 3.3 Addressing PAIs and Mitigation
 

3.3 Addressing PAIs and mitigation

SAM addresses negative impact in its investments considerations by applying several methods ranging from ESG Integration, Exclusions, and Active Ownership. Please see Storebrand's Sustainable Investment Policy and description of policies above for more information on how SAM addresses adverse impact in general, which overlaps to an extent with PAI indicators.

SAM builds over this general approach to adverse impact mitigation by further focusing on addressing and mitigating adverse impact as described in the PAI indicators.

As the quality of PAI indicators data improves and becomes available, SAM considers a range of methods to address and mitigate adverse impact. These methods will be applied taking into consideration the type of strategies that best fit specific portfolios' sustainability objectives and SAMs general sustainability strategies that apply across all asset classes.

PAI Leaders, PAI Intermediate performers and PAI laggards: To start, SAM will identify PAI laggards (red), and PAI intermediate performers (yellow), and PAI leaders (green) so that risk can be avoided, and more capital can be allocated to more sustainable companies.

Those companies identified as PAI laggards will be further analyzed with the aim to address adverse impact and mitigate it, which may result in either engagement or exclusion by the Risk and Active Ownership team.

Engagement: Laggard companies may be selected for engagement due to poor PAI performance across several PAI indicators or some key material PAI indicators critical for the sector the company belongs to. Poor PAI data quality or coverage may also be a reason for engagement. If the risk and engagement team is not already covering this specific PAI indicator through SAM general engagement initiatives, a specific engagement will be created in order to address and mitigate the specific PAI indicator covering the laggard companies. Click here for more information on our main focus engagement areas for more information regarding SAM main focus engagement areas.

Exclusion: PAI laggards (red) may be selected for exclusion depending on the risk and severity of the negative impact identified, the total cumulative negative impact across all PAI indicators identified and the probability of successful engagement. Exclusion will be added to Storebrand exclusion list.

The Risk and Active Ownership team may decide to engage or exclude laggards regardless of the asset class. However, different SAM's subsidiaries, such as, Cubera, Real Estate and SKAGEN have the responsibility to further mitigate adverse impact within their own portfolios.

More generally, once the PAI laggards (red) are identified, portfolio managers have the opportunity and responsibility to further integrate this already categorized PAI data in order to further mitigate risk and allocate more capital into more sustainable companies.

This is to be done by selecting different methodologies. These may include: 1. "PAI worst in class approach" where companies scoring poorly on a PAI indicator can be avoided; 2. "High-risk sector only PAI approach", where only companies belonging to high risk sectors and performing poorly on a PAI indicator may be avoided, or 3. "Integrated PAI risk rating approach," where companies are avoided based on the integrated average PAI indicator score or a combination of critical material PAI indicators. A strategy may also be developed for optimisation of investments in companies that are identified as PAI leaders [5-10 %] as part of the PAI class/sector/rating PAI analysis.


Sovereign bonds:

Storebrand considers sustainability and adverse impacts in its investment process for government bonds or other sovereign assets. We will not invest in countries lacking elementary institutions to prevent corruption, fulfil basic social and political and civil rights. We also make assessments based on current events such as conflicts, coup d'etats and civil unrest. In addition, PAIs for sovereigns will be added to the assessment we already have in place. See Sovereign Bonds at Storebrand's Sustainability Investments.
 

Real Estate investments:

While both social and governance aspects are relevant as well, SAM has within real estate investments long addressed negative environmental impacts and mitigation. Targeting environmental footprint reductions in general, and improvements in GHG emissions through among others energy efficiency and waste recycling and reduction, is well integrated in our strategy and post investment property management and development activities. Pre-investment assessments and selection decisions are adjusted to support these targets.

Sustainability due diligence focuses both on environmental standards and if relevant the costs of improvement. Third party environmental certification is an important tool for securing insight and good standards both pre and post investment. In addition, tenants' and main suppliers' business and practices are assessed in order to promote and cooperate on adverse impact mitigation in property management. For more information see here.

In order to enhance our adverse impact mitigation our practices both pre and post-investment will be further developed, and we will report on the 5 PAIs outlined above in 1. Description of PAIs: Mandatory and Voluntary PAIs.

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