Appendixes
49
Glossary
ESG STARS strategies The ESG STARS product range uses NAM’s proprietary ESG scoring system and bespoke analysis carried out by the Responsible Investments team and financial analysts. The strategies focus on selecting companies, not only with sound fundamentals, but also with high ESG scores. Using the SASB materiality map, company analysis includes enhanced due dili- gence on environmental, social and governance risks material to the company, and considers how companies manage their identified ESG risks. Furthermore, each company’s business model alignment with the SDGs is taken into consideration, as the strategies’ exposure aims to skew towards companies whose activities are net supportive or neutral, rather than de- tracting towards the SDGs. ESG scores are recalibrated regu- larly and at least annually, or if triggered by relevant negative or positive events. The ESG model sources data from several external data providers as input for the ESG score. Exclusion list NAM excludes companies involved in serious breaches of inter- national norms, where engagement is deemed not to be possi- ble or effective. For example, we ban investment in companies active in the production of controversial weapons, including – but not limited to – cluster munitions and anti-personnel mines, as well as nuclear weapons. NAM also does not invest in companies deriving more than 10% of their revenues from thermal coal, and excludes companies involved in the produc- tion fossil fuels with thresholds for revenues coming from oil sands (10%) or arctic drilling (5%).The NAM level exclusion list can be found here. Integration of Principal Adverse Impact (PAI) The environmental and social impact of the activities of all NAM investee companies is assessed on an ongoing basis through our firm-level PAI integration. Companies identified as outliers on one or more PAI indicators, are analysed further which may result in a recommendation for action. NAM’s dis- closure statement on the integration of Principal Adverse Im- pact indicators can be found here. Norms-based screening NAM’s investment products are subject to norms-based screen- ing, which identifies companies that are allegedly involved in breaches of international laws and norms on environmental protection, human rights, labour standards and anti-corruption. If a company is identified in this screening process, an internal assessment of the company and the incident is initiated. Typical actions can consist of engagement, quarantine or exclusion. For more information please refer to the NAM RI Policy.
Active Ownership On behalf of its clients, NAM undertakes a range of engage- ment activities with companies, in order to affect and influence these to improve their environmental, social and governance practices, including promoting a long-term approach to de- cision-making. Our active ownership tools include voting, at- tending AGMs, standard setting, engagement with companies, filling resolutions etc. A detailed description of NAM’s engage- ment processes can be found in the NAM RI Policy. Engagement A form of active ownership. The practice of shareholders en- tering into a dialogue with the management of companies to change or influence the way in which the companies are run. Read more about our engagements on page 17–30 in this report. Enhanced exclusion filters and limits Exclusions aim at limiting the investment exposure to certain sectors or activities that may be considered to be damaging for the environment and/or the society at large. Sector screenings assess a company’s involvement in a specific activity measured by the revenue derived from this activity. Sector exclusions are the result of screenings based on the data and methodol- ogy of NAM’s selected data vendors. Strategies are available with different exclusion filters including ethical filters targeting tobacco, alcohol, gaming, pornography etc. In addition, some products also feature targets or limits on carbon footprint/ intensity relative to benchmark, targeted minimum ESG score or other exclusion lists like the so-called “NBIM list” of the Norwegian Government Pension Fund Global or the Carbon Underground 200 list. Environmental, Social and Governance (ESG) Environmental (E), Social (S), and Governance (G) refer to the three main areas of analysis in modern responsible investment. ESG risks and opportunities are identified through careful analysis of a company´s operations. Environmental criteria look at how a company performs as a steward of the natural envi- ronment. Social criteria examine for instance how a company manages relationships with its employees, suppliers, custom- ers and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls and shareholder rights. ESG integration The explicit inclusion of ESG risks and opportunities into tra- ditional financial analysis and investment decisions based on a systematic process and appropriate research sources. This considers ESG factors alongside financial factors in the main- stream analysis of investments. The integration process focuses on the potential impact of ESG issues on company financials (positive and negative), which in turn may affect the invest- ment decision.
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