Arctic Asset Management (AAM) believes strong performance depends on responsible investing. In our view, companies with a positive and improving impact on the environment, corporate governance and social responsibility, are more likely to provide excess returns to investors over time. We therefore analyze ESG issues and integrate sustainability in our investment process. Furthermore, analyzing a company’s ESG factors is a central part of our risk analysis.
ESG and sustainability risks are integrated in the portfolio managers’ fundamental investment process through company scorecards. Sustainability is scored in the same manner as the other elements we include in our fundamental company analysis. The process ensures that strong governance, a favorable environmental profile and social responsibility are rewarded in our investment decisions, through a higher company score. Similarly, poor corporate governance, known environmental issues, and poor social responsibility will cause us to rank the overall score down. This makes initial investment less likely and may trigger a sale of existing holdings, bonds or equities.
All Arctic funds have been classified as Article 8 funds under EU’s Sustainable Finance Disclosure Regulation (SFDR). The Investment Manager follows The Norwegian Government Pension Fund Global’s socially responsible investments (SRI) policy by taking ethical, environmental and social issues into account in its management of the Fund. In practice, this means that the Investment Manager invests with a view to:
- Promote good corporate governance and greater awareness of social and environmental issues among companies in which the Fund has holdings.
- Promote sustainable development in an economic, environmental and social sense; and
- Avoid investments in companies which engage in grossly unethical activities.
AAM has an internal taxonomy database. The database contains data on eligibility and alignment for companies we invest in on behalf of our clients, in line with the taxonomy regulation, with its classification of sustainable activities.
In addition, we monitor the mandatory and optional principle adverse impacts (PAI) under the SFDR regulation. This allows us to easily keep track on environmental, social and governance issues.
As portfolio manager on behalf of active owners we vote and engage with the portfolio companies. We have company ‘Guidelines for engagement and the exercise of voting rights. We annually publish our implementation of this policy, developed in line with the recommendations from the European Fund and Asset Management Association Code for external governance.
The European Commission Action Plan on Sustainable Finance has as a key objective to reorient capital flows towards sustainable investments. AAM recognizes these policies are likely to affect the risk-reward of investments, and the flow of funds between companies and sectors. We welcome Action 9; strengthening corporations’ climate-related financial reporting and sustainability disclosures. This has the potential to reduce information asymmetries and ambiguities in company reporting.
In addition to be a signatory to the UN Principles for Responsible Investments, UN PRI, AAM is a member of the following organizations:
- Norsif, the Norwegian financial industry forum for responsible and sustainable investments.
- CDP which runs a global disclosure system for environmental data
- FAIRR, a collaborative investor network which raises the ESG risks in livestock production.
Companies should follow what we consider principles of good corporate governance. In Norway, these have been organized in guidelines from the Norwegian Corporate Governance Board (NCGB/NUES).