We believe in integrating sustainability when investing customer savings, as this approach supports and strengthens our efforts to generate long-term and attractive returns.
Integrated approach to sustainability
We integrate sustainability aspects when we select investments. In our investment analyses and decisions, we consider environmental, social and governance (also known as ESG) factors along with financial aspects to make the best possible investments for the benefit of our customers.
Sound investments with sustainable returns
Sustainable investment is about making good and sound investments, and ESG aspects play a key role. The performance of an investment in terms of environmental, social and governance aspects may affect whether or not it is a good investment. Briefly put; we believe that investments that take into account sustainability are good investments that can also generate attractive returns on a sustainable basis.
Analysing and assessing ESG aspects
We analyse and assess companies’ approach and efforts to ensuring good and healthy working conditions, protecting personal data, respecting human rights, using resources effectively, working against corruption, etc. In addition to this, we also analyse whether they run a sound and responsible business with a good corporate governance structure.
When analysing investments, we look at how they comply with industry-specific best practice, international conventions and the framework for corporate social responsibility, such as the UN Global Compact or the OECD Guidelines for Multinational Enterprises. As part of the Danske Bank Group, we have a number of Position Statements defining our expectations of companies’ approach to sustainability.
Identifying opportunities and risks
By identifying opportunities and risks in terms of ESG and financial aspects, we are able to select the best investments. On the one hand, we can avoid unforeseen risks and thus minimise the risks of making poor investments. On the other hand, we can select investment opportunities that perform well in terms of ESG and generate robust long-term returns.
By analysing financial matters and ESG aspects, we get a better understanding of the investments, and whether they can generate sound and attractive returns on a sustainable basis.
Customised ESG integration
We analyse and apply ESG in different ways in our investment analyses and decisions, adapting it to the individual investment or asset class. Investments have different characteristics and are affected differently in terms of ESG. We therefore customise our ESG approach to the specific asset class and strategy to create maximum value on the investments.
The climate agenda is key when we invest customer savings and engage with companies. This supports our aim to create attractive pension savings and also to contribute to the climate goals of the Paris Agreement.
We consider climate aspects in our investment processes.
Our ambition is to invest about DKK 100 billion in the green transition by 2030.
We report on our investments’ carbon emissions.
We support the climate initiatives Task Force on Climate-related Financial Disclosure (TCFD) and Climate Action 100+.
Tools for a solid and systematic ESG integration
We apply ESG data and analyses from various external providers. This gives us the best possible perspectives in relation to the investments’ ESG performance across asset classes. We apply this knowledge in our investment analyses and decisions.
Overview of significant ESG aspects
In our investment analyses, we apply our tool – mDASH – to zoom in on and identify any significant ESG aspects that may affect the investments and the long-term creation of value. The analyses are key when we select investments and engage with companies.
ScreeningWe screen the investment universe to identify ESG-related risks and opportunities. In our screening process, we look at how investments comply with best practice, international conventions and the framework for corporate social responsibility, etc. The analyses form part of our dialogue with companies and our investment analyses and decisions. We apply both our own analyses and external data and analyses in the screening process.
ESG specialistsOur in-house department of ESG specialists and analysts supports our investment teams. Having a specialised ESG department provides us with deeper insights into the ESG aspects that are significant when selecting investments. It also improves our ability to effectively influence companies through dialogue.
We regularly arrange skill-building programmes for our investment teams. This is to ensure that they are familiar with the latest knowledge within the ESG area, so that they can further develop and improve the integration of ESG in our investment analyses and decisions.
"When investing in alternatives, we typically hold shares in the companies for a long period of time, and it is important to know all risks, challenges and opportunities. It is therefore essential that we discover all ESG aspects of a company, and this forms a significant part in our due diligence process and our decision about whether to make the investment. This is key to making attractive investments.”Danica Pension’s Chief Investment Officer, Poul Kobberup
Focus on significant ESG aspects
We focus on the significant ESG aspects that affect the long-term return potential of an investment. They vary from one investment to the next due to a number of factors, such as industry, business complexity, products and services, competition, regulation, consumer trends, etc. By means of screening, internal and external analyses, expert knowledge as well as ESG data, we can identify the aspects that are most relevant when selecting an investment. See examples of the significant ESG aspects of the different industries below.
Production of chemicals can generate hazardous waste, such as heavy metals, acids or sewage sludge. Chemical companies have to comply with regulations on waste management and may be challenged in terms of complying with the statutory requirements for transportation, treatment, storage and disposal. We focus on the companies’ strategy in terms of reduction of waste, effective and proper management and disposal of waste, recycling etc. Although such efforts may require major investments, it can help reduce the companies’ long-term expenses and risks of regulatory sanctions or legal actions.
Production of building materials also requires considerable volumes of water, and the industry is subject to regulatory and operational risks caused by water shortages, for example. This may lead to increased price pressure, costs related to water supply or regulation of sewage management. Production may be affected if companies do not have a stable water supply. Increasing water prices may also lead to increased production costs. Companies implementing technologies and processes that enhance the water supply will have fewer business risks in relation to increasing production costs, water shortages, etc. They will also reduce the impact of regulation. Being at the leading edge of development can generate significant business opportunities for a company.
Society’s focus on the climate agenda, political climate regulation, change in consumer behaviour and new energy-efficient technologies has created major changes within the Danish energy and utilities sector. The transition towards production of energy with lower carbon emissions opens up interesting opportunities and new risks within the sector, and we analyse and identify the investments that are best positioned to create long-term value. Societies and customers all over the world focus more and more on green energy, and it will most like be most advantageous to invest in companies that take part in the green transition. For example, we zoom in on the development of infrastructure facilities for electric vehicles, replacement of coal-based energy production and on oil companies that focus on reducing their carbon emissions through cleaner energy sources.
Real estate companies may also be affected by, for example, shifts in climate patterns that may result in more frequent extreme weather conditions. We focus on whether companies regularly analyse how climate-related risks affect their business, and whether they mitigate these risks to create a robust business model. Companies within forestry may also be affected by the climate change, such as in relation to changes in rainfall patterns and temperatures, more frequent extreme weather conditions or wildfires. Here, we also focus on the companies’ approach to handling significant risks related to the effect of climate change on forestry and timber production, and whether they seize the opportunity to implement initiatives that can give them a business edge in relation to handling climate-related business consequences.
Safe working conditions
Safe working conditions
Companies producing building materials typically experience increased safety and health risks. Increased risks may be due to, for example, the extraction of raw materials involving the use of construction equipment (heavy equipment). Also, hazardous dust may be generated, with potential health consequences. In this industry, we focus on how companies ensure safe health conditions and work safety, and how they create an environment promoting safety in the workplace.
In the bio and pharma industry, inadequate product safety or incorrect information about side effects are significant risks that may lead to costly actions for damages. We focus on whether companies implement policies and procedures for security measures in their production facilities, and whether they have adequate governance in their product development.
The pharmaceutical industry is governed by a number of international, national and regional regulations to prevent corruption and bribery that could give companies an unlawful competitive edge. For example, strict statutory requirements in the USA prohibit companies form funding activities that would enable them to unlawfully attract new or retain existing customers. As for this industry, we focus on whether the companies’ anti-corruption procedures comply with the statutory requirements in the countries they operate in.
Human rights and local communities
Human rights and local communities
Mining companies often perform mining operations at the same location over a number of years, and they depend on local support to get and maintain permission to perform mining operations. During the period of active mining operations, the local community may be socially or environmentally impacted. This may influence the companies’ opportunity to perform mining operations. We focus thus on how mining companies collaborate with local communities and other stakeholders in relation to the rights of indigenous people, human rights in general, health questions related to mining operations, etc.
Developing and strengthening sustainability efforts
Our ESG Integration Council ensures strong integration of ESG in our investment processes across the investment universe. We regularly discuss how we can best integrate ESG in our various asset classes, so that it benefits our customers’ returns, and so that we can contribute positively to the companies we invest in.
ESG Integration Council
- Determines the implementation of the sustainable investment strategy
- Evaluates and discusses ESG-related risks, challenges and dilemmas
- Defines investment restrictions
- Discusses active ownership activities, including possible collaboration with other investors and stakeholders
Making demands on external managers
When we use external asset managers to invest our customers’ pension savings, we make demands in relation to their ESG integration. ESG must be an integral part of their investment decisions alongside financial aspects in order to identify significant risks and opportunities. In addition to this, we expect them to engage with portfolio companies to push them towards taking positive steps and support their growth and development. We monitor and evaluate external asset managers on an ongoing basis and together we discuss further initiatives in relation to ESG integration and active ownership. We regularly strengthen our processes and criteria for selecting external asset managers to generate the best possible returns for our customers and to exercise active ownership.