Fully Engaged
Creating value through ESG engagement
Johan Swahn, Portfolio Manager of Nordea’s Global Stars Equity Strategy

Nordea’s STARS range – which includes our Global Stars Equity Strategy – embodies true ESG integration, with thorough research undertaken to identify companies with sustainable and responsible business models. We firmly believe businesses on the right side of change are more likely to be tomorrow’s winners.

The first stage in our investment process is to seek out companies displaying compelling ‘expectation gaps’ – these are fundamental value drivers which have a materially different view from the market. The next step is to make assessments of a company’s strategic positioning, focusing on businesses with sustainable competitive advantages – or moats. When assessing a company’s moat, we consider the impact of various ESG risk factors, which are quantified in the final valuation model.

While we carry out rigorous bottom-up fundamental analysis, we think the key differentiator for the STARS investment process is the ESG integration and analysis. ESG analysts from Nordea’s Responsible Investments Team work alongside us every step of the way, providing invaluable insights into possible risks and opportunities to our current and potential investments.

Each company we invest in, as well as every potential new holding, is assessed on whether it conducts business responsibly in relation to its stakeholders – including employees, suppliers, customers, investors, the environment and society at large. The team examines whether a company’s products or services are well-positioned in relation to broader sustainability megatrends, such as climate change or changing demographics, as well as how a company incorporates ESG challenges into its business model.

Our team then uses its proprietary rating model to assign a forward-looking rating to the company, which determines whether there is a positive or negative trend. Each company is given an A, B or C rating. Our strategy, as well as all other STARS strategies, do not invest in any C-rated business.

We believe engagement is an incredibly powerful tool to bring about positive change. Before engaging with a company, we seek to identify the most relevant and material ESG topics. A good example of this roadmap can be seen through the investment in global food ingredients leader Kerry Group. On our first engagement in October 2015, our ESG analysts noted some weakness in labour practices within Kerry’s agricultural supply chain. At this point, the company was given its first rating, of B+.

Our Responsible Investments Team continued to engage with Kerry over the next 18 months and it witnessed substantial improvements when visiting the company in April 2017. Kerry was then given an A+ rating, the highest rating available. Kerry is still part of our portfolio today.

As for recent additions to our portfolio, during the third quarter of 2019, we took a stake in research-driven biopharmaceutical company AbbVie – a leader in areas such as immunology, oncology and neuroscience. Attention towards the healthcare sector has spiked over the past two years on the back of the opioid epidemic in the US. In our view, the opioid crisis is in large part explained by excessive selling practices.

Although AbbVie is not involved in the opioid crisis, the issue has highlighted the importance of understanding a company’s culture and incentive structure. When discussing business ethics – one of our ESG pillars – we found the AbbVie was generally aligned with global best practices.

We have given AbbVie an A-rating, reflecting in part its best practices around the governance structure to tackle perhaps the most material risk to its business – mis-selling. In addition, the company overall has strong policies and procedures in regard to product quality and safety.

For our Global Stars Equity Strategy, we are pleased to note our portfolio’s carbon footprint is 63% lower than the benchmark (MSCI ACWI)*, while the strategy’s contribution to the eight environmental objectives within the United Nation’s Sustainable Development Goals is 2x higher than the benchmark.

Although Nordea Investment Funds S.A’s information providers, including without limitation, MSCI ESG Research LLC. and its affiliates (the “ESG Parties”), obtain information from sources they consider reliable, none of the ESG Parties warrants or guarantees the originali-ty, accuracy and/or completeness of any data herein. None of the ESG Parties makes any express or implied warranties of any kind, and the ESG Parties hereby expressly disclaim all warranties of merchantability and fitness for a particular purpose, with respect to any data herein. None of the ESG Parties shall have any liability for any errors or omissions in connection with any data herein. Further, without limiting any of the foregoing, in no event shall any of the ESG Parties have any liability for any direct, indirect, special, punitive, conse-quential or any other damages (including lost profits) even if notified of the possibility of such damage.”

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, subsidiaries and representative offices. This document 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 ar-rangement, any relevant prospectus and the latest key investor information document (where applicable) relating to the investment. The appro-priateness 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 doc-ument 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 unse-cured 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. The Legal Entities’ branches, subsidiaries and representative offices 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, subsidiaries and representative offices. This document may not be reproduced or circulated without prior permission. 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 circum-stances and may be subject to change in the future. © The Legal Entities adherent to Nordea Asset Management and any of the Legal Entities’ branches, subsidiaries and/or representative offices.

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