Downside protection and bond holder engagement
Earlier this fall, Tell Media Group, in co-operation with Aegon Asset Management, BlackRock and Danske Bank Asset Management, invited four Norwegian institutional investors and manager selectors to discuss ESG-integration in fixed income. Tell Media Group founder Niklas Tell and Nordic Fund Selection Journal editor Caroline Liinanki moderated the roundtable.
The discussion, which was held at The Thief Hotel in Oslo, kicked off with Caroline Liinanki asking the investors about how their responsible investment policies for fixed income have changed over the years.
Jeanett Bergan: “From a broad perspective, KLP has always looked at fixed income in the same way as equities when it comes to ESG. We’re a global, mostly passive, investor in 6000 companies in 50 countries. We have strict guidelines and many exclusion criteria and the same criteria apply to both equities and fixed income. That said, over the last three to four years, we’ve done more work on ESG integration and are trying to be more aware of ESG risk upfront. We think that it’s sometimes even more important in fixed income than in equities, due to less liquidity.”
Lars Tronsgaard: ”It has been a long journey for Folketrygdfondet. We started to be an active owner in the 1990s, focusing a lot on the corporate governance side. From that starting point, we’ve tried to find a structure on the equity side on how to do responsible investments. The work on the fixed income side started some three to four years ago and by that time, we had a lot of experience from the work we had done in equities. Contrary to KLP, we don’t have any exclusion and our approach to responsible investments is completely financial, which means integrating ESG-related topics to the credit analysis and to the investment decision. It’s not an ethical question – it’s a financial question. We believe that the companies that run their businesses in a sustainable way will give the best return over time and we’re a long-term investor, so that fits our approach.”
Kristian Ryland: “Responsible investments have been high on the agenda in Norway for a long time, starting with the work done by Norges Bank and the Council on Ethics. That developed into ESG integration as part of that overall responsible investing toolbox. At Grieg, we have our own framework of ‘Do no harm – do good to make it happen’ where we, among other things, look at ESG factors. That’s both from a risk perspective but also as a set of opportunities.”
Katrine Lindbekk: ”At Gjensidige, we have, as many Norwegian investors, used negative screening for both fixed income and equities but in recent years, we’ve stepped up the work we do on the fixed income side. For our Norwegian bond portfolio, we’ve spent a lot of time on the “G” in ESG and we have governance ratings on all holdings, which feeds into our credit analysis. Going forward, we will spend more time on the “E”. We’ve also had much more dialogue with our external managers over the last couple of years on ESG-related factors. That’s something that’s always part of our manager selection process today. The basis is having an ESG policy in place but we also look at their credit analysis work to understand how it works in practise.”
Niklas Tell: “Specifically for fixed income, would you say that it’s the ESG risk or the opportunities that are the most important?”
Katrine Lindbekk: ”The risk management aspect is essential of course. With equities, you have unlimited upside but in fixed income, it’s mostly a risk on the downside. Bad governance and not keeping up with current standards are risks that you would like to keep out of your portfolio.”
// Roundtable participants
Lars Tronsgaard, Folketrygdfondet: Fixed income portfolio manager at Folketrygdfondet, the manager of the Government Pension Fund Norway, but previously its deputy CEO and head of fixed income. Before joining the fund in 1992, he was the CFO of Realkreditt, a company that merged with DNB. He started his career as a financial analyst at Den norske Creditbank, now part of DNB.
Jeanett Bergan, KLP: Head of responsible investments at the pension company KLP. She previously held the job between 2007 and 2017 but rejoined at the start of this year after about two years as director of sustainability at PwC Norway. She started her career as a sustainable investments analyst at Storebrand in 1998 and has also worked as a CSR advisor at KPMG.
Kristian Ryland, Grieg Investor: Head of fixed income at Grieg Investor, the Norwegian institutional investment consultancy firm. Prior to taking on the role as head of fixed income in 2013, he was an analyst at the firm, where he has worked his whole career.
Katrine Lindbekk, Gjensidige: Senior portfolio manager at the insurance company Gjensidige for the past nine years. Prior to that, she was a head of Statnett pension fund and has also worked at Kaupthing Asset Management and Morgan Stanley Investment Management. Until 2007, she spent seven years as a portfolio manager at KLP Kapitalforvaltning.
Andreas Dankel, Danske Bank Asset Management: Head of credit at Danske Bank Asset Management. He was also responsible for developing the firm’s European corporate sustainable bond fund, which was launched in 2016. Prior to joining Danske in 2008, he worked as a portfolio manager at BankInvest.
Brunno Maradei, Aegon Asset Management: Global head of ESG at Aegon Asset Management. Prior to that, he was a senior investment officer at the European Investment Bank. He has also been a senior manager at the research firm EIRIS and spent eight years at the World Bank Group.
Giulia Pellegrini, BlackRock: Portfolio manager, head of EMD sustainable investing and deputy head of EM economic research for the fundamental emerging markets debt team within BlackRock's global fixed income group. Prior to joining BlackRock in 2015, she was chief economist for Sub-Saharan Africa in JPMorgan's emerging market research team
The roundtable discussion was published in issue 05 of Nordic Fund Selection Journal and a PDF of the story can be found here.
