Advertising Material for professional investors only*
Access to information contained on this website is exclusively reserved for professional investors in Luxembourg. Please read the important information below. This contains legal and regulatory information which applies to our company status, use of this website and information about any investment in our products referred to in this website. Note that you will have to accept these terms and conditions before you can proceed. Copyright 2023 by Nordea Investment Funds S.A. – all rights reserved.
Access to information contained on this website is exclusively reserved for investors in Luxembourg. Please read the important information below. This contains legal and regulatory information which applies to our company status, use of this website and information about any investment in our products referred to in this website. Note that you will have to accept these terms and conditions before you can proceed. Copyright 2023 by Nordea Investment Funds S.A. – all rights reserved.
You have requested to view an article or page that is not available in your domain, selected language and/or to your investor type.Go to Home Page
Advertising Material for professional investors only*
By Eric Pedersen, head of responsible investments at Nordea Asset Management
17 November 2022
The investment industry’s understanding of ESG and sustainability has evolved in recent years, making it increasingly clear the often-claimed choice between exclusion and engagement is a fallacy. While asset managers should not be afraid to exclude companies when necessary, it should be obvious that initiating and maintaining constructive dialogues with the corporates chosen for portfolios is crucial to achieving real-world impact.
For this reason, the use of engagement and voting to influence companies is now overwhelmingly accepted as a driver of more sustainable business practices. As such, it is recognised as a vital element of long-term value creation within both equity and bond markets.
However, as the recent clampdown on greenwashing shines a spotlight on ESG promotion and integration claims, it is understandable if engagement increasingly comes under the microscope. As we believe engagement will continue to be a powerful tool for investors, it is vital the asset management community creates broader awareness of the work undertaken behind the scenes to foster positive change. Engagement also needs to be the real deal – merely sending annual letters is not enough.
Currently, most of the higher profile engagement cases are embarked upon by investor coalitions, such as Climate Action 100+, or the collaborative engagement we at Nordea initiated regarding construction of the planned coal fired Vung Ang 2 power plant in Vietnam. While communication of the results of such activities will remain important, it is also crucial for investors to demonstrate smaller – but still significant – engagement efforts at individual company level. In most cases, such dialogues occur over a number of years.
Importance of individual efforts
As an example, our Responsible Investments team has been in multi-year discussions with French group Air Liquide, a global leader in industrial gases. The industrial sector is responsible for 23% of global energy-related CO2 emissions, which demonstrates the urgent need for improved efficiency in the sector. While it is not ‘obviously green’, Air Liquide is one of the companies able to help achieve this.
As a heavy emitter, Air Liquide tends to be penalised by ESG data providers, with the company scoring poorly in conventional carbon footprint tools. However, the end-use of the company’s products and services often helps contribute to emissions reductions at the point of use. Incentivising Air Liquide to focus on its contribution to combating climate change can therefore drive both increased positive impact and better recognition of the company’s efforts.
Accordingly, during the early part of our engagement interactions with the company, we focused on persuading Air Liquide management to report in line with Task Force on Climate-Related Financial Disclosures (TCFD) recommendations. In addition, we urged the introduction of a long-term commitment to reach net zero by 2050, as well as the setting of science-based greenhouse gas (GHG) reduction targets. As a result of this phase of our engagement, Air Liquide publicly committed to reaching net zero, while it is also now adhering to TCFD reporting.
In our most recent meetings with Air Liquide’s CEO and head of sustainability, we continued to stress the importance of the company demonstrating the robustness and achievements of its climate strategy, along with the opportunities it sees in the hydrogen market. In response, Air Liquide published its first sustainable development report earlier this year, presenting the group’s sustainability ambitions and extra-financial results. In the report, Air Liquide highlighted a carbon intensity reduction of 24% versus 2015 levels, while it is on track to achieve its objective of a 30% reduction by 2025.
In a first within its industry, Air Liquide has also obtained validation for its short-term Scope 1 & 2 targets from the Science Based Targets initiative, or SBTi. As for its plans for hydrogen, the company has committed €200m to expand hydrogen production and related infrastructure.
Continuing the credible commitments
As Air Liquide is among the largest GHG contributors within Nordea’s portfolios, it will remain one of our focus engagements for the foreseeable future. Encouragingly, Air Liquide remains genuinely receptive to our feedback, and management remains committed to improving the company’s ESG profile. Apart from helping us reach our own climate targets, this provides additional comfort on the overall investment case.
As we move into 2023, our next steps with the company include the continued push for increased green capex, the third-party validation of Scope 3 targets, the provision of a robust and credible decarbonisation roadmap, and execution on its carbon emissions reduction targets. For now, Air Liquide is rated B+ within our proprietary ESG scoring model, meaning it is investible for our ESG STARS fund range – where we, on a quarterly basis, provide reporting on our most important company engagements. This is the sort of information we hope and expect to see more of in the market – helping to prove real ESG investment can indeed have real-world impact on the issues that matter to us all.
*according to MiFID definition
Nordea Asset Management is the functional name of the asset management business conducted by the legal entities Nordea Investment Funds S.A. and Nordea Investment Management AB (“the Legal Entities”) and their branches and subsidiaries. This document is advertising material and is intended to provide the reader with information on Nordea’s specific capabilities. This document (or any views or opinions expressed in this document) does not amount to an investment advice nor does it constitute a recommendation to invest in any financial product, investment structure or instrument, to enter into or unwind any transaction or to participate in any particular trading strategy. This document is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instruments or to participate to any such trading strategy. Any such offering may be made only by an Offering Memorandum, or any similar contractual arrangement. Consequently, the information contained herein will be superseded in its entirety by such Offering Memorandum or contractual arrangement in its final form. Any investment decision should therefore only be based on the final legal documentation, without limitation and if applicable, Offering Memorandum, contractual arrangement, any relevant prospectus and the latest Key Investor Information Document (where applicable) relating to the investment. The appropriateness of an investment or strategy will depend on an investor’s full circumstances and objectives. Nordea Investment Management AB recommends that investors independently evaluate particular investments and strategies as well as encourages investors to seek the advice of independent financial advisors when deemed relevant by the investor. Any products, securities, instruments or strategies discussed in this document may not be suitable for all investors. This document contains information which has been taken from a number of sources. While the information herein is considered to be correct, no representation or warranty can be given on the ultimate accuracy or completeness of such information and investors may use further sources to form a well-informed investment decision. Prospective investors or counterparties should discuss with their professional tax, legal, accounting and other adviser(s) with regards to the potential effect of any investment that they may enter into, including the possible risks and benefits of such investment. Prospective investors or counterparties should also fully understand the potential investment and ascertain that they have made an independent assessment of the appropriateness of such potential investment, based solely on their own intentions and ambitions. Investments in derivative and foreign exchange related transactions may be subject to significant fluctuations which may affect the value of an investment. Investments in Emerging Markets involve a higher element of risk. The value of the investment can greatly fluctuate and cannot be ensured. Investments in equity and debt instruments issued by banks could bear the risk of being subject to the bail-in mechanism (meaning that equity and debt instruments could be written down in order to ensure that most unsecured creditors of an institution bear appropriate losses) as foreseen in EU Directive 2014/59/EU. Nordea Asset Management has decided to bear the cost for research, i.e. such cost is covered by existing fee arrangements (Management-/Administration-Fee). Published and created by the Legal Entities adherent to Nordea Asset Management. The Legal Entities are licensed and supervised by the Financial Supervisory Authority in Sweden and Luxembourg respectively. A summary of investor rights is available in English through the following link: https://www.nordea.lu/documents/engagement-policy/EP_eng_INT.pdf/. The Legal Entities’ branches and subsidiaries are licensed as well as regulated by their local financial supervisory authority in their respective country of domiciliation. Source (unless otherwise stated): Nordea Investment Funds S.A. Unless otherwise stated, all views expressed are those of the Legal Entities adherent to Nordea Asset Management and any of the Legal Entities’ branches and subsidiaries. This document is furnished on a confidential basis and may not be reproduced or circulated without prior permission and must not be passed to private investors. This document contains information only intended for professional investors and eligible investors and is not intended for general publication. Reference to companies or other investments mentioned within this document should not be construed as a recommendation to the investor to buy or sell the same but is included for the purpose of illustration. The level of tax benefits and liabilities will depend on individual circumstances and may be subject to change in the future. © The Legal Entities adherent to Nordea Asset Management and any of the Legal Entities’ branches and/or subsidiaries.