Responsible Investments Report 2021

Our planet is on track to surpass a 1.5° C temperature increase and investors are concerned. As more investment dollars flow toward the net zero transition, companies play an increasingly important role in decarbonizing the global economy. New innovations and solutions present myriad opportunities for investors – and with those opportunities, comes responsibility.

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Any investment decision in the sub-funds should be made on the basis of the current prospectus and the Key Investor Information Document (KIID).

Contents RI Annual Report 2021 Foreword

3 4

2021 at a glance The year in review

ESG highlights of the year Regulation, a force for change Active in the global RI community New investor initiatives in 2021 Sustainability in our Nordic DNA Our Responsible Investment approach ESG Governance and Teams Responsible Investment Framework

5 7 8 9

11 13 14

ESG research approach – how we asses an ESG investment

Our Responsible Investment overlays Norms-based- and PAI screening

15 16 33 34 35 38 39 41

Active Ownership

Exclusions

ESG Integration across asset classes Responsible Investment strategies at NAM

Stepping into impact investing

Outlook 2022 Appendixes

Nordea Nordea is the largest financial services group in the Nordic region (approx. 9 million personal customers and 500,000 corporate customers) and one of the biggest banks in Europe. We want to make a real difference – for our customers and for the communities in which we operate – by sharing our extensive expertise based on 200 years in the banking business. About Nordea Asset Management 1 Nordea Asset Management (NAM) is part of the Nordea Group. We are an active asset manager with a global business model, offering services to institutional clients in Europe, the Americas and Asia. We manage investments across the full spectrum of asset classes. Our third-party distribution franchise services a wide range of international fund distributors, including many of the leading global wealth managers. We distribute our products through banks, asset managers, independent financial advisors, insurance companies and family offices. Our client base is equally split between Nordea Group-related and external clients. With EUR 292 bn (31 December 2021) in assets under management, we have been experiencing strong growth over the past decade.

1) Nordea Asset Management it is the functional name of the asset management business conducted by the legal entities Nordea Investment Funds S.A. and Nordea Investment Manage- ment AB and their branches and subsidiaries. Nordea Investment Funds S.A. is the management company and Nordea Investment Management AB is the investment manager of all funds belonging to NAM.

RI Annual Report 2021 Foreword

Signs of the times

Sustainable investing is the new normal – what’s next?

ESG isn’t just mainstream, it’s driving the market 2021 was a watershed year for ESG. A record USD650 billion poured into ESG-focused funds globally, and ESG funds now account for 10% of worldwide fund assets.2 ESG AUM is expected to reach USD50 tn by 2025.3 It’s clear that when it comes to sustainable investment, the market is clearly moving from the “why” to the “why not?”. As I look back on 2021, I am encouraged by the gains Nordea Asset Management made in deepening our active ownership activities and ongoing commitment to Responsible Investment. Specifically, we expanded our ESG reach as well as our geo- graphic reach with a new ESG hub in Singapore and raised €900 mn in commitments for the first fund of our private equi- ty venture Trill Impact. This was one of the largest first-time funds raised by an independent investment firm during the global pandemic. Decarbonizing portfolios is a vital component of driving the necessary transition toward a lower carbon future. To that end we set Net Zero targets for all of our ESG STARS equity prod- ucts. Moreover, with a handful of exceptions, all of our Article 8 and 9 funds adhere to our Paris-Aligned Fossil Fuel Policy. We also stepped up our engagement efforts, even amid social distancing restrictions, and joined the Finance for Biodiversity Pledge initiative. To create real-world impact, we engage NAM doesn’t take the easy way out. To effectuate meaningful change through our investment activities, we must reach beyond exclusion. It’s not enough to cherry-pick sustainable companies, we have to influence the behaviour of those with poorer sustainability performance, such as heavy carbon emit- ters. Active ownership – using both engagement and voting to influence companies – is paramount. The ShareAction Voting Matters 2021 report ranked us shared first in voting for climate resolutions among members of Climate Action 100+ and the Net Zero Asset Managers initiative and first in the Nordics in terms of overall voting activity. We’re ready for the new regulations As our industry shifts toward ESG integration, there is an increasing need for consistent, high quality data and disclo- sures. As more asset managers jump on the ESG bandwagon,

greenwashing is creating challenges – however, ongoing regu- latory change will mitigate this. Beginning in August 2022, reg- ulators in Europe will require distributors and financial advisors to offer MiFID-eligible ESG portfolios to clients with sustain- ability preferences. We are fully ready to embrace this new regulation with a strong track record in responsible investing, and the scale and the experience investors need. Last year, we concentrated a great deal of effort into classifying our funds according to SFDR (Sustainable Finance Disclosure Regulation). We closed out the year with 224 Article 8 funds, of which 12 are ESG STARS funds, and 5 Article 9 funds, including our Nordea 1 – Global Climate and Environment Fund, which is the largest Article 9 fund in Europe (and thus globally). All of our Article 8 and 9 funds, which represent 66% of our total AUM, will be eligible to be distributed under the MiFID II regulation. We’re fit for the future The accelerating climate crisis is concerning, but there are many reasons for optimism in 2022. Our world is waking up, and inves- tors are getting active. NAM’s 2021 ESG Survey of 1200 Euro- pean individual investors revealed 73% want advisors to offer them more ESG products. 76% increased their ESG investment in the past year, and 71% plan to increase their ESG allocation over the next 12 months.4 2022 will likely see a sustainable investment boom that favours the agile and the prepared. As always, we are working hard to stay at the forefront of ESG through engagement, regulatory expertise and development of new solutions. Since 2020 the pandemic has shone a light on ESG issues, driv- ing interest and investment in sustainable solutions. The momentum continues to increase in 2022, and we’re ready. I invite you to read our RI Annual Report to find out more about our ongoing commitment to Responsible Investment.

Nils Bolmstrand, Chair of the Responsible Investments Committee and Head of Nordea Asset Management

2) Reuters, How 2021 became the year of ESG investing, 23 Dec 2021. 3) Bloomberg, ESG by the Numbers, 3 Feb 2022. 4) Data from July/Aug 2021.

2021 at a glance

ESG Offering

Assets under Management

Products

New reports in 2021

€ 292 bn total AuM

224 Art. 8 funds 5 6 Art. 9 funds 5

2 Impact Reports

22 ESG Reports 792 ESG Factsheets

66.5%

In RI solutions

ESG Capabilities

Resources

Engaged

Voted

1033 engagements

General meetings

100% Climate resolutions supported

> 4200

36% E

Corporate Governance Specialists +2 25 Dedicated ESG analysts 6

44%

> 700

20%

2020

2021

ESG Leadership

Initiatives

Awards 7

Labels 8

3 European ESG labels

International investor initiatives

Net Zero Targets

By 2025

By 2030

By 2050

80% of Top 200 constributors to financed emissions to be Paris-aligned or engaged to become so Phase out investments in coal- related companies without plans to achieve a full exit from coal by 2040

100% of Top 200 constributors to financed emissions to be Paris-aligned or engaged to become so 50% reduction of WACI across listed aquity and corporate bonds

Net zero emissions across all assets under management

5) According to European SFDR classification. 6) Data as of 31.03.2022.

7) More information on ESG awards on pages 5 – 6. 8) More information on labels on page 37.

The year in review

ESG highlights of the year

2021 was yet another year heavily impacted by the COVID-19 pandemic, but also a year highlighting the importance of addressing global social and environmental issues. While the world has been witnessing record flows into ESG funds, we at NAM have continued building on our long experience in Responsible Investment (RI) by further strengthening our ESG framework and offering.

A lot has happened in the world of ESG, and it has had an industry wide impact – affecting all asset managers including NAM. We see that our long experience in this space has given us a head start to tackle many of the ESG related issues, and as ESG remains as our strategic area of expertise and focus, our year has been filled with developments and recognition in this field. Regulation around ESG has been a hot topic during 2021, espe- cially for us in Europe who witnessed the Sustainable Finance Disclosure Regulation (SFDR) coming into force, bringing new disclosure requirements requiring asset managers to classify funds according to their ESG status. At NAM, we’ve taken a careful approach to the fund classification, building it on our long-standing RI Policy and Framework. Today we have around 230 funds that are classified as either Article 8 or 9 as per SFDR. While we soft closed our pioneering Global Climate and Envi- ronment Strategy due to its great success (largest Article 9 fund in Europe) 9 , we enhanced our ESG Thematic range with two new strategies; The Global Climate and Social Impact Strategy which aims to provide meaningful solutions to meet pressing social and environmental needs, and the Global Green Bond Strategy, becoming the first fixed income strategy within our ESG Thematic universe. Active ownership continues being a strong focus point for us. In early 2021 we launched an internal cross-departmental project to massively increase voting, with the goal to reach close to full coverage within a few years. Already at the closing of 2021 voting season, we reached above 90% coverage on all votable meetings, voting on more than 4200 General Meetings. Our focus on climate topics is also visible in our voting activities. In the ShareAction’s Voting Matters 2021 report, NAM was in shared first place on supporting climate resolutions, among Asset Managers that were members of NZAM and Climate Action 100+ initiatives 10 . Naturally, another important aspect of our active ownership activities is engagement with companies. Last year we had over one thousand engagements, covering wide array of topics across Environmental, Social and Gover- nance matters.

actively part in investor initiatives. We are currently participat- ing in 36 initiatives, including some of new additions such as the Finance for Biodiversity Pledge. Biodiversity is one of the key focus themes for us, and being part of this initiative, will enable us to work together with other investors and financial industry participants to set standards for this increasingly important topic. Participation to initiatives is also a way for us to enhance, develop, and benchmark our approach to ESG topics. We’ve been a founding member of the Net Zero Asset Managers (NZAM) initiative since 2020, when we also pub- lished our first Net Zero commitments. In 2021, one of the big- gest climate related efforts was to set detailed portfolio level decarbonisation targets that were published in the NZAM progress report. Significant efforts were put into defining the right methods and metrics in order to present credible and robust targets, and currently portfolios corresponding to just under 60% of our equity AuM are specifically managed in line with net-zero in 2050. This work will continue during 2022, and we have committed to doubling the AuM covered by fund level targets by 2025.

Our dedication and expertise in ESG has not gone unnoticed. In 2021, NAM was recognised by multiple international awards, both for our product specific ESG approaches as well as for our general ESG work. We were honoured to be named among the finalists in the prestigious PRI Awards with our Vung Ang 2 engagement initiative, as well as for being recognised for the same engagement by the Asset Management Awards as the best ESG initiative of the year. The collaborative engagement against the construction of Vung Ang 2 coal power plant was initiated and led by NAM’s own inhouse Responsible Invest- ments team, the team which was also awarded with the title of Best ESG Team in Europe by CFI.co. We are pleased to see that our work is recognised internationally, and we hope it inspires investors and companies into sustainable decision making.

Besides being an active owner, another way for us to create real world change and promote the best practices is to take

9) Source: Morningstar Manager Research, 4 February 2022: SFDR Article 8 and Article 9 Funds: 2021 in Review. 10) Source: ShareAction Voting Matters 2021: Are asset managers using their proxy votes for action on environmental and social issues?

The year in review

Nordea 1 – Emerging Stars Equity Fund CDP’s Climetrics Fund Awards recognized the top five actively managed funds for each equity category, based on their underlying Climetrics score. The Nordea 1 – Emerging Stars Equity Fund was one of the top 5 winners in category Emerging market equity.

Nordea 1 – North American Stars Equity Fund International Investment Awards 2021 chose the Nordea 1 – North American Stars Equity Fund as the Best ESG/Sustainability Fund. The fund was also selected as one of the three winners of Mountain View Fund Awards in category “Equity Funds Sustainability North America”.

Nordea 1 – Emerging Stars Bond Fund Nordea 1 – Emerging Stars Bond Fund was chosen as the winner of Environmental Finance Sustainable Investment Awards 2021 in the category of ESG fixed income fund of the year (global). The judges’ comments included statements such as “Nordea has an innovative solution to integrating ESG into sovereign bonds with positive engagement success" and “Nordea's engagement deserves a special mention and the firm's tools also are above market average".

The year in review

Regulation, a force for change

The EU’s ESG regulation passed significant milestones in 2021 and there are more coming. How is NAM helping clients navigate these?

The EU’s ESG regulation passed a significant milestone in 2021 with the Sustainable Finance Disclosure Regulation (SFDR) coming into force in March. Since then we’ve seen ongoing development of next-level details around the Taxonomy and the SFDR, and we are moving towards forthcoming changes to MiFID II. These regulatory changes have had various implica- tions for all financial market participants, and asset managers – including NAM – are no exception. The SFDR brought new disclosure requirements and required asset managers to classify funds according to their ESG status. At NAM, our fund classification has been built on our longstand- ing RI Policy and Framework. These include both corporate-level approaches that apply to all NAM funds (including our Article 6 funds) and product-specific approaches, which, combined with the corporate-level overlays, represent the binding commit- ment to ESG that Article 8 classification requires. The RI policy and RI framework were already in place long before the SFDR demanded formal disclosures, and the work carried out by our award-winning RI team over the past years meant we were able to live up to both the letter and the spirit of the SFDR without consequential changes to our investment processes. The SFDR’s primary aim is to give investors transparency in order to minimize greenwashing. With this in mind, we have developed further our ESG reporting to ensure our clients have the information they need about our ESG activities. We have introduced detailed ESG reports for most of our flagship ESG STARS funds, and we also offer impact reports for some of our impact-oriented (Article 9) funds. The next major regulatory changes will be the changes to MiFID II, which will affect the way distributors and advisers interact with their clients. After August 2 nd , 2022, distributors and advisers must offer clients products which meet their sus- tainability preferences as well as their financial objective – or explain why they can’t. It is therefore vital that distributors and

advisors are able to identify which products are eligible under MiFID rules (‘MiFID-eligible’) to be recommended to clients with sustainability preferences.

MiFID II offers three methods – which can be used individually or in combination – of assessing a fund for its suitability for clients with sustainability preferences. These will be products:

...with a minimum proportion of Sustainable Investments

...with a minimum pro- portion of Tax- onomy-aligned investments

...with an investment strategy that considers PAI elements

and/or

One of the tools our RI team has developed to ensure our ESG products will be MiFID-eligible is the PAI engine, an add-on to our proprietary ESG database. This add-on allows both our RI team and our portfolio managers to manage and analyse spe- cific ESG metrics, including PAI (Principle Adverse Impact) indi- cators, a new set of ESG data points introduced by the SFDR. As well as enabling the team to consider PAI elements within our funds, the PAI engine plays an important role in identifying a portfolio’s proportion of so-called Sustainable Investments. These are two of the three methods of classifying funds as eli- gible for sale to clients with sustainable preferences. Need to build a MiFID-eligible portfolio? Take a look at Nordea’s ESG STARS funds, your building blocks to a MiFID-eligible ESG portfolio. Nordea’s ESG STARS solutions span different regions and asset classes. We bring the track record, the scale, and the experience your portfolio needs. Take a look at our solutions on page 35.

The year in review

Active in the global RI community

Taking active part in the industry wide discussion around responsible investment and promoting best practices across the investment community are key components to our ESG work.

Annual ESG survey Our annual ESG survey highlighted to us that there is great investor appetite for sustainable investment products in the European markets, but that advisers’ ability to sell them may be held back by a lack of knowledge. We have therefore developed a series of three training presentations suitable for distributors and advisers about ESG and the implications of the regulatory changes in Europe, and have now started to offer this to clients. We are currently updating our ESG e-learning to include the relevant regulatory aspects and we expect this to be available in the first part of 2022. Academic collaboration During 2021, our ESG experts have been contributing to the Copenhagen Business School lectures for students with a minor in ESG by sharing their knowhow and educating the students. Our head of Responsible Investments, Eric Pedersen, sits in the advisory board of the Boston University Impact Measurement & Allocation Program. We believe that this collaboration and IMAP’s research can create positive change in how ESG data can be utilized by asset managers and other investors. Collaborative engagements We believe that joining forces with other investors in engaging with companies is a great tool that enforces the message we wish to bring. While we engage also individually, collaborative engagements are an important part of our active ownership work. This allows us to share views with other industry play- ers, and scale up the impact of our engagements. In 2021, we participated in 724 collaborative engagements, leading 77 of those. The most common collaborations were related to SASB, Climate Action 100+ and the Corporate Human Rights Bench- mark, besides our own Vung Ang 2 initiative and the Investor Policy Dialogue on Deforestation, in which we also play a lead- ing role.

Participating in investor initiatives is one way for us to share our knowledge as well as to develop and benchmark our own ESG approach and framework. During 2021, we were active in 36 investor initiatives across several ESG topics as well as in several Sustainable Investment Forums (SIFs) around Europe, and we participated in numerous engagements in collabora- tion with other investors. While these initiatives and collaborative actions are extremely important part of our work, we see that our role and respon- sibility in the RI community goes beyond these initiatives. We wish to engage with our stakeholders, in order to educate them as well as to receive valuable feedback and information. We do this by participating in events and discussions, contrib- uting to publications, engaging with our clients, and through academic collaboration. Below we share some of the highlights and examples of our actions in the Responsible Investment community. EFPA Luxembourg, Green Ethica publication As a recognised leader in Active Ownership, we were honoured to contribute to the EFPA Luxembourg’s 1 st edition of Green Ethica publication with two chapters taking a view on impor- tance of active ownership and especially engagement activi- ties. The publication was a result of a cooperation of more than 50 co-authors and more than 30 corporates, aiming to share the best practices and insights to Green Finance. SASB Integration Insight At NAM, the SASB Materiality Map is an important founda- tion of both our proprietary ESG scoring and our engagement process. However, the case study about our engagement with Samsung SDI, illustrates how important it is for users of SASB Standards and the SASB Materiality Map to combine the comparable industry-based aspects of the Map with their own knowledge of company-specifics. The case study has been published here.

The year in review

New investor initiatives in 2021

As a responsible investor, we are actively participating in investor initiatives around various ESG topics. We are currently part of 36 initiatives, including the 7 new initiatives that we joined during 2021.

Finance for Biodiversity Pledge In 2021, we took the next step on the journey of addressing biodiversity-related risks and opportunities by becoming a member of the Finance for Biodiversity Pledge initiative. As a Pledge signatory we commit to collaborate, engage, assess our portfolio’s biodiversity impact, set targets and report on signifi- cant positive and negative biodiversity impacts linked to our investments by at latest 2024. We expect biodiversity disclosures to follow the same pat- tern as climate risk, where investors are inclined to publish information so that, in turn, they demand more granular and material data from portfolio companies. These insights will be key to embed natural capital risk into the decision-making and strategies.

• Investor Statement to Governments on the Climate Crisis: Signed by 587 investors with USD 46 trillion in assets, the investor statement urges governments to rapidly improve their climate policies and warns that laggards will miss out on trillions of dollars in investment if rapid and sufficient actions are not taken. The statement sets out five climate-related actions governments need to urgently undertake • Investor Statement in Support of Mandated Human Rights and Environmental Due Diligence in the European Union: As one of the 94 investors with more than USD 6 trillion in assets, we signed a public statement calling on the European Commission to make sure that the new directive on corporate due diligence ensures corporate accountability for human rights and environmental impacts through administrative and civil liability, and access to remedy for affected people • Investor Statement on Corporate Accountability for Digital Rights: We were one of the 77 investors representing over USD 5.9 trillion in assets, signing an investor statement expressing investors’ concern about the weak governance of digital rights risks and the lack of transparency and accountability in the information and communications technology sector, affecting people’s rights to privacy and freedom of expression, including a lack of users’ control over their own information and how it is used. The statement requests companies to consider: 1) Commit to and implement robust human rights gov- ernance, 2) Maximize transparency on how policies are implemented, 3) Give users meaningful control over their data and data inferred about them, 4) Account for harms that stem from algorithms and targeted advertising

Investor statements signed during 2021:

• IIGCC Investor Position Statement “Vote on Transition Planning”: A group of 55 leading investors, managing more than USD 14 trillion of assets, are calling for the implementation of new corporate governance measures to ensure shareholders can hold companies to account in achieving ‘net zero emissions commitments’. Investors are calling on companies to disclose a net zero transition plan, identify the director responsible for the plan and provide a means for investors to vote annually on progress against the plan • Investor Statement for Stronger Biodiversity policies ahead of COP15: Representing 78 financial institutions, the initiative urges world governments to halt and reverse biodiversity loss, and calling for a realignment to a nature- based economy that could generate USD 10 trillion of annual business opportunities and nearly 400 million jobs by 2030 • Investor Statement on Human Rights and Business Activities In Myanmar: A global partnership between 86 investors, with more than USD 4 trillion in combined as- sets under management, calling on companies to uphold their corporate responsibility to respect human rights by undertaking enhanced due diligence to identify and ad- dress human rights harms and in so doing, mitigate legal, financial, and reputational risks associated with such violations

You can find a full list of the investor initiatives we are currently participating, in the appendix, page 45.

The year in review

Sustainability in our Nordic DNA

Being part of Nordea Group, the Nordic values are an essential part of Nordea Asset Management’s business culture guiding us in everything we do.

Sustainability is embedded across Nordea’s business strategy, backed by measurable targets, strong governance, and a broad sustainability offering. Nordea Group has a long and solid expe- rience within Sustainable Finance, and we are fully committed to – and actively working on – making the financial sector more sustainable. In 2021, Nordea’s President and CEO Frank Vang- Jensen was invited to join the United Nations Environment Pro- gramme Finance Initiative (UNEP FI) Leadership Council, which is a partnership between the UN and the global financial sector to mobilise private sector finance for sustainable development. The council provides vision and strategic direction to UNEP FI in orienting its role and that of the UN in shaping, mainstream- ing and deepening sustainability integration across the industry. It will further mobilise the financial community to support sus- tainable, resilient and inclusive economies.

Nordea Group’s sustainability work is led by the Group Sustain- ability team. This includes everything from setting and meet- ing our internal sustainability targets, from resource-usage to diversity, and also integrating sustainable considerations into the products and services across the Group. At NAM level, the Responsible Investments (RI) team, carries out the research and integration of environmental, social, and governance (ESG) aspects into our investments. The two boxes below summarize some of our key sustainability measures. More information about the work carried out by Group Sustainability can be found in Nordea’s Annual Report 2021.

Diversity and inclusion

Carbon footprint

Age distribution in the total workforce

Gender balance

Nordea has committed to achieving net-zero carbon emissions by 2050 across investment portfolios and internal operations

27% 19%

Board of directors

CO2

40%

60%

Group Leadership Team

54%

33%

67%

CO2e emission intensity:

11,327 Total CO2e emissions: tonnes

People leaders

1.18

42%

58%

below 30 years old 30–50 years old above 50 years old

Total workforce

51%

49%

tonnes/EURm of total operating income

Nordea Asset Management

33%

67%

Source: Nordea Annual Report 2021, Nordea Investment Management AB.

Our Responsible Investment approach

ESG Governance and Teams

Responsible Investments team Our award-winning Responsible Investments (RI) team was established in 2009, and at the time of writing comprises 25 dedicated ESG analysts 11 with a wide range of experience from academia, independent RI organisations and investment. Besides being fully integrated with the investment boutiques managing ESG products and setting the framework for the development of new quantitative tools and data sources, the team carries out ESG research, active ownership activities, and represents NAM in international RI initiatives. The team is con- tinuously developing our RI approach in line with the increasing complexity, depth and scope of application of ESG methods, and to maintain NAM’s leadership in the area. The team maintains both a broad RI coverage and a particular focus on our ESG STARS and thematic strategies, working close- ly with their respective portfolio management teams. The RI team often participates in client meetings and ESG conferences to share their latest insights and findings. It also leads ESG train- ing (e.g. climate workshops) both internally and for clients. For example, in 2021 the team offered training across the company around the new EU regulations on sustainable finance.

The RI team’s various functions and main responsibilities can been divided into five areas:

• Active Ownership team is responsible for NAM’s engage- ment activities, as well as for driving the Responsible Investment Committee agenda and the RI Policy develop- ment. This group also works with the Corporate Gover- nance team on proxy voting • Climate team maintains focused expertise and analysis on climate change factors and policies, implementation and reporting on TCFD recommendations • ESG Private Equity team supports NAM’s private equity collaboration with Trill Impact • ESG Products & Research team carries out company spe- cific ESG research and engagement for NAM’s ESG funds, as well as ESG product development • ESG Quant team develops and maintains NAM’s propri- etary ESG scoring model, as well as other advanced appli- cations of ESG data

Responsible Investments (RI) team

Head of RI Eric Pedersen

ESG Products & Research

ESG Quant

Climate

Active Ownership ESG Private Equity

Michaela Zhirova Head of ESG Products and Research

Katarina Hammar Head of Active Ownership

Hetal Damani Head of ESG Private Equity

Eric Pedersen Head of ESG Quant and Climate

11) Data as of 31.03.2022. This number includes only full-time RI professionals in the RI team. Corporate governance and proxy voting professionals, Portfolio managers managing ESG funds and financial analysts and other employees with ESG as part of their responsibility are additional to this.

Our Responsible Investment approach

Responsible Investment Committee (RIC) While the day-to-day management of ESG topics is handled by the RI and investment teams, NAM’s RI approach is gov- erned by the RI Committee (RIC), chaired by NAM’s CEO Nils Bolmstrand and comprised of senior management represent- ing various departments in the organisation. NAM’s internal RI Committee serves as the highest decision-making body of Responsible Investment within NAM, acting on behalf of all actively managed funds. The RIC keeps an overview of NAM’s RI strategy, engagements and exclusions and determines NAM’s overall ESG investment guidelines, ensuring that NAM follows the intention of the RI policy and always acts in the best interest of clients. It also decides the appropriate reaction when a company is found to breach our guidelines. The RIC may decide to exclude, quaran- tine and/or engage with the company, depending on the type of violation and our ability to influence the company. To sup- port the ESG investment guidelines, the RIC approves and is the owner of NAM’s Responsible Investment Policy, which also details the international conventions we subscribe to and what we require of the companies we invest in.

Corporate Governance team Our Corporate Governance team actively engages with com- panies in which the funds have significant ownership by voting at annual general meetings in accordance with the Corporate Governance Principles. The Corporate Governance team works in close collaboration with the Responsible Investments (RI) team and our Portfolio Managers (PM) to align the steward- ship work especially on important ESG resolutions.

Eric Durhan Head Corporate Governance

Jan Särlvik Corporate Governance Specialist

Responsible Investments Committee

• •

Quarterly meetings

Chair Asset Management CEO Nils Bolmstrand

Urgent decisions (reacting to incidents and/or breaches) can be taken an same-day basis

Nordea Group Representatives

Head of Responsible Investments

Head of Institu- tional & Whole- sale Distribution

Head of Active Ownership

Communication & Media

Head of Equities & Fixed Income

Head of Product Office

Our Responsible Investment approach

Responsible Investment Framework

At NAM, we believe it is our fiduciary duty to deliver returns with responsibility. Our commitment to be a responsible asset manager is not new. We launched our first sector-screened fund in 1988 and we were an early adopter of Responsible Investment (RI), signing the UN Principles for Responsible Investment (PRI) back in 2007. Responsible Investment Solutions now comprise over 66% of NAM’s AUM.

NAM has developed policies and procedures to ensure that the companies we invest in meet our expectations of ESG perfor- mance, and that ESG and sustainability risks are managed in all our investment processes. These include both corporate-level RI approaches ("overlays") and product-specific approaches. NAM’s RI Policy defines our position on sectors that are linked to material ESG issues, going beyond the international norms and conventions. This helps to ensure that the companies we are invested in meet our expectations of sound ESG perfor- mance. The policy describes the stance we take on a number of areas within human rights, climate change, biodiversity and good governance. Depending on the nature and gravity of in-

dividual cases, breaches can trigger engagement or exclusion. The RI Policy applies to all NAM funds and is publicly available on our website. Our corporate-level RI overlays include norms-based screen- ing and PAI integration, active ownership activities, NAM-wide exclusions, as well as ESG integration. In the following sections we will discuss in more detail how these activities are carried throughout all our investments. We also have product specific RI approaches that take a step further into enhancing ESG integration. You can read more about these solutions on pages 35–37 in this report.

A comprehensive RI Framework including various forms of RI

NAM total AUM € 292 bn

Nordea Asset Management corporate level RI “overlays” applicable to all funds

All actively managed funds € 270 bn

ESG Integration 13

Active Ownership

Corporate-level Exclusion List 12

Norms-based screening

Corporate-level PAI Integration

ESG products Article 8 and 9 funds – according to SFDR classification

~ 66.5% of total AUM € 194.6 bn

ESG STARS strategies € 17.9 bn

Our Flagship ESG strategies

ESG STARS Strategies 19

ESG Thematic Strategies 5

ESG thematic € 12.4 bn

Source: Nordea Investment Management AB. Data as at 31.12.2021. 12) Over 260 companies. NAM’s Exclusion List available here. 13) Every investment boutique has access to NAM’s proprietary ESG Model and ESG analysis from the RI team and ESG data from external data providers via our proprietary ESG data platform.

Our Responsible Investment approach

ESG research approach – howwe assess an ESG investment

Our strategy is to find the most sustainable investment: those who make money by creating long-term value. Our analysis approach is augmented by a materiality-focused review of ESG risk, governance, environmental footprint and social impacts.

Materiality led A key part of our process is identification of financially material ESG issues – those which are likely to influence the financial performance of the company or a country. We weigh these issues flexibly, according to their materiality for the specific sector and geographical location. We use the materiality map of SASB as a guideline to determine materiality, but we supple- ment it with our own insight into the workings of the company. Both which issues we consider material and the weight we assign to them will vary by sector. A software company, for example, will have a relatively low environmental footprint, be dependent on skilled labour and intellectual property (social), and be vulnerable to data privacy regulation such as the GDPR (business ethics). A mining company, on the other hand, will have a high environmental footprint and will also need solid relations with its labour force (social). And exposure to univer- sal risks such as climate change will also be different. Company specific Part of our ESG analysis is to interact and engage with compa- nies, through management meetings and systematic engage- ment. The outcome and knowledge of these activities flows into our assessment of the companies. Reputational risk and exposure to controversy is also something we consider at the company or country-specific level. Responsiveness to investor concern, tone from the top, and company culture are important

parts of final evaluation. This allows us to produce forward- looking ESG scores that include the direction a company is moving in, dimensions that are not found in traditional external ESG ratings.

Business model alignment with the UN Sustainable Development Goals (SDG’s) We consider how a company’s business aligns with the SDG’s, whether the service or product the company offers contributes positively to society, how significant aligned activities are as a proportion of revenue, how much capex is directed into them, and whether they are a visible driver of growth. This is relevant both because the SDG’s present large and durable business opportunities, and because SDG alignment – or the lack thereof – is an indicator of a company’s material impact on the world around it. This way, our research takes into account both sides of the so-called “double materiality”. Our assessment of the business model is weighted at 30% in our internal scoring pro- cess. (Governance is also fixed – at 10%.) In other words, both how a company makes money and how it is run always matter.

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Norms and PAI screening

Norms-based screening NAM’s investment products are subject to an ongoing norms- based screening process, which identifies companies allegedly involved in breaches of international laws and norms on envi- ronmental protection, human rights, labour standards and anti- corruption standards. Examples of such norms and standards include the UN Global Compact and the OECD Guidelines for Multinationals. If a company is identified in this screening pro- cess, an internal assessment of the norms breach is initiated. The assessment is conducted by the RI team, which provides a recommendation to the RIC. Typical actions which the RIC decides on include engagement, quarantine or exclusion. For more information please refer to the NAM RI Policy. PAI Screening Principal Adverse Impact (PAI) on sustainability factors is used as a tool to assess investee companies’ environmental and social impact. All NAM investee companies are assessed through our entity-level PAI integration due diligence process. NAM’s RI team has developed a proprietary quantitative “PAI Engine” that assesses the performance of NAM´s full invest-

ment universe across multiple, mandatory and optional, PAI indicators. The engine utilises a diverse set of data across numerous ESG thematic areas in order to ensure that investee companies’ performance is accurately analysed and outliers are identified. In this way, the PAI engine produces suggestions as to which investee companies are likely to perform outside NAM’s acceptance criteria for ESG performance. Investee companies which are considered outliers on one or more PAI indicators are analysed further by NAM’s RI team and a recommendation for action is made to our RIC in a process similar to the one applied for Norms-based breaches. The RI team analysts are able to review the suggested output and manually adjust, confirm or override the PAI engine’s sug- gested output as needed. NAM’s Entity-level PAI statement can be found here.

PAI statement on product level will be published in 2022, as required by the SFDR.

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Active Ownership

Being an active owner is central to our understanding of ESG and Responsible Investment. Therefore, our active ownership activities span across all of our products.

We believe that active ownership is a powerful way to protect shareholder value, enhance long-term returns and foster posi- tive change. We are convinced that ensuring good ESG prac- tices in our funds’ holdings is an important part of safeguard- ing the long-term interests of shareholders and society. When we want to improve a company’s management of its ESG risks, we exercise our ownership right to support and influence the company.

While we fully are fully prepared to exclude companies when we deem it necessary, our experience proves that active ownership can often be an effective tool to improve ESG per- formance, manage risk and identify opportunities. Our active Ownership takes place in two streams – engagement and vot- ing – both equally important and reinforcing one another.

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Engagement

We believe that improved management of sustainability risks and opportunities is vital to creating returns with responsibility, and that engagement can result in competitive advantage, increasing the likelihood of companies being successful in the long run – benefitting companies, clients and society at large.

Engaging with our investee companies enables us to address material sustainability risks and opportunities.

Our engagement activities typically fall into one or more of three different categories:

1. Investment-led engagement This relates to material ESG-related risks or opportunities identified by portfolio managers, financial analysts and ESG analysts via our company assessments. 2. Norms- and incident based engagement (including PAI): Addresses companies that are in breach of international norms or conventions or those involved in ESG-related inci- dents. Significant deviation from the relevant peer universe on PAI metrics may also trigger engagement. 3. Thematic engagement This type of engagement is initiated for investee companies with the most material exposure to one or several of our four focus areas: • Biodiversity • Climate • Good governance • Human rights Each theme is closely aligned with the SDGs and relevant ESG risks, and has been selected and defined through close collaboration between ESG specialists, portfolio managers, financial analysts and clients. All of our engagements are tracked in our in-house database and reviewed by the RI team to monitor progress.

Our engagement activities combine the perspectives of portfo- lio managers, financial analysts and ESG specialists to form a holistic opinion and establish coherent engagement objectives. Portfolio managers actively participate in engagement activi- ties together with our ESG analysts. Engagements often run over several years and are carried out either by NAM alone or in collaboration with other institutional investors. During the engagement period, we conduct regular meetings with the company and track progress against pre-defined engagement objectives. Engagement may entail a dialogue with the companies’ executive bodies, influence on board composition, cooperation with other investors on joint voting at annual general meetings, and generally keeping a strict eye on the company. The dialogue allows us to put forward our expec- tations on corporate behaviour and to support companies in enhancing their sustainability performance. Progress reports and outcomes of the engagement are communicated to port- folio managers and financial analysts, allowing the information to be considered in investment decisions. In cases where an engagement relates to critical issues for the specific investment case or the general investability of a company, failure to meet expectations will entail escalation of the issue through other stewardship activities, such as voting, and ultimately the con- sideration of quarantine or divestment.

We will elaborate and showcase these engagement types in the coming chapters.

NAM’s engagement activities are carried out on behalf of all our funds, and follow this process:

Research and engagement dialogues/meetings

Engagement selection

Engagement plan with objective

Report progress or escalate

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Engagement overview 2021

Engagement status

Focus engagement topics 1. Good governance (43%) 2. Climate (24%) 3. Human Rights (21%) 4. Biodiversity (12%)

Resolved 15 10%

Closed 14 1%

Active 16 89%

458

724 647

309

372

1033 Total engagements

Top 3 collaborative engagements 1. SASB (25%) 2. CA100+ (16%) 3. CHRB (13%)

% of equity AUM covered by engagements

48% not engaged

engaged 52%

203

14) Engagements that have come to an end, but the engagement objectives have not been achieved. This is primary the case when NAM does not longer have exposure to the company. When relevant, engagement cases that have been closed can be escalated to our Responsible Investment Committee for potential exclusion decision. 15) Engagements that have come to an end since the engagement objectives have been achieved. 16) Ongoing engagements.

Top 6 SDGs

Geographical breakdown

30%

38%

SDG 13

Europe

19%

34%

SDG 8

North America

18%

20%

SDG 5

Asia

11%

SDG 15

South America

11%

SDG 16

Oceania

SDG 6

Africa

Source: United Nations, Sustainable Development Goals.

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Coal Power

Research shows that coal power must be phased out globally by 2040 to meet the Paris Agreement's goal to limit global warming to 1.5°C. Historically, a coal-fired power plant has had an average lifespan of 46 years, which means that all new financing of coal-fired power plants is in direct conflict with the goals and timetable of the Paris Agreement. Since 2020 NAM has been the initiator and driving force behind a collaborative engagement urging companies to withdraw from the construction of a coal-fired power plant in Vietnam. Several leading Asian companies have now announced an end to future coal projects.

Engagement case: Vung Ang 2 We at NAM are critical towards any of our investee companies being involved in the construction of new coal-fired power plant projects, as this is inherently inconsistent with limiting global warming to below 2°C.

In 2020, we initiated a collaborative engagement with the financiers, owners and contractors of a new coal-fired power plant in Vietnam, the Vung Ang 2, with the aim of having the companies withdraw from the construction as well as to com- mit not to contribute to further coal-fired power expansion. This was due to our having identified the project as having high climate-related, financial and reputational risks and being inconsistent with the goals and timelines of the Paris Agreement. NAM is the leading investor of the consortium consisting of 25 investors and representing approximately EUR 4.8 trillion in AUM. The media interest for this engagement has been extensive and has contributed to an increased public opinion against Vung Ang 2 and coal in general. Several of the companies linked to the project have taken steps to reduce their involvement in the coal industry (see box), and our engagement also informed the climate debate in the parliament of the Republic of Korea, which ultimately led the government to set new net zero goals.

Companies that have responded

The project is an example of how we’re actively working with companies to ensure that they transition at the pace required to achieve a net-zero emission world by 2050. Phasing out coal from the energy sector is one of the most important steps to reach the goals set out in the Paris Agreement. Companies that have reacted to the letter from the con- sortium includes the owners Korea Electric Power Corpo- ration and Mitsubishi Corporation as well as the contrac- tor Samsung C&T, all announcing an end to future coal projects. In addition the financiers MUFG, SMFG and Muzuho have all introduced targets to reduce their financing of coal- fired plants to zero by 2040.

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