Sustainable investments policy
In Nykredit's investment universe, we strive to make a contribution to the world we all live in. This is true when we invest our customers' money as well as our own. We aim to invest in companies that exercise diligence and care in respect of their customers, staff and society at large. Companies that seize opportunities and want to be part of the solution, not the problem, are simply just better investments.
This is why Nykredit is committed to Global Compact as well as the UN Principles for Responsible Investment (UN PRI). Accordingly, our investment policy not only pertains to Nykredit's investment funds, but also to the Group's investment of its own funds. Nykredit aims to make investments that meet Danish, European and international goals, including the Paris climate agreement (COP21) and the UN's 17 sustainable development goals.
Nykredit's policy rests on two legs. One leg is to push for a solution when a company violates national legislation, generally accepted UN conventions or Global Compact's principles. We call that active ownership. The other leg is our objective to use knowledge about corporate sustainability performance (environment, social and governance criteria) in the investment process.
Screening of portfolios
Each quarter, we screen the companies in which we invest to identify any breach of the international conventions etc mentioned above. With the assistance of our advisers we screen all issuers of equities and bonds in our internally as well as externally managed portfolios of Nykredit's investment funds, and Nykredit's and its subsidiaries' investment of own funds.
Alternative investments, such as passive investments and investments combining passive approaches, are covered by this policy. As a general rule, where no matching instrument exists, financial instruments, such as derivative financial products and ETFs, must comply with this policy.
Dialogue with companies in the event of breach of conventions etc
If we receive confirmed reports of breach of conventions etc, we enter into dialogue with the relevant company for the purpose of making it change its conduct. We may join forces with other investors, just as we will vote at the company's annual general meeting. If dialogue proves unsuccessful or if the company's core operations usinessare in violation of international law, we will exclude the company.
If the Sustainable Investment Forum decides to exclude a company, evaluation will be undertaken within two years of the decision in order to determine whether exclusion of the company is still warranted.
Active ownership and voting
In the context of its asset management processes, Nykredit is also an active owner in a broader sense. Nykredit will exercise its voting rights for its equity positions as part of its active ownership. With attention paid to costs and the highest possible efficiency, Nykredit will prioritise exercising its voting rights for the largest positions and in relation to issues of principle. Nykredit aims to vote on more than half of its equity positions annually.
Nykredit is an active owner in the context of its asset management. In this connection, Nykredit will exercise its vote for its equity positions in Danish and foreign companies. Nykredit aims to exercise its vote for all active positions and for more than half of its equity positions measured in terms of value, thereby covering a good share of the passive investments.
With this policy, Nykredit will comply with all parts of the recommendations made by the Committee on Corporate Governance on active ownership when investing in Danish companies. Generally, Nykredit seeks to be an active owner. For budgetary reasons, Nykredit applies a principle of proportionality in selecting foreign companies with special regard being had to the size of investment and controversies of importance in principle. The latter element is described in Nykredit's sustainable investments policy, which has active ownership as a core instrument. One example is a situation where a company has demonstrated conduct that is in breach of national legislation, widely accepted UN conventions or Global Compact's principles.
The Committee on Corporate Governance issues its recommendations on corporate governance on an ongoing basis. Nykredit shares the Committee's views on corporate governance: That the purpose of corporate governance is to support value creation and accountable management, and thus to contribute to the long-term competitiveness of the companies. This is achieved by ensuring investors' confidence through the provision of timely information as well as transparency.
In the context of voting, Nykredit will apply the recommendations as guiding principles when accessing the individual company. Such assessment will always take into account a company's individual position, and not least special cultural circumstances prevailing in the country in which a company is registered. As mentioned in Nykredit's investment policy, a company's approach to corporate social responsibility will form part of the assessment.
The purpose of voting is always to secure that the company's long-term value creation and thereby the investment of our investors. The Fund exercises its vote solely for the purpose of ensuring the highest potential return for investors. Having the most knowledge of the companies, Nykredit Asset Management's portfolio managers are tasked with casting Nykredit's votes in accordance with the Fund's policy. Nykredit's internal procedures for avoidance of conflicts of interest apply. If a conflict of interest arises, Nykredit's Sustainable Investment Forum will be involved in the decision with a view to ensuring that investors' interests are safeguarded. The Boards of Directors of affected investment funds will be informed about the conflict of interest and the way it has been handled to safeguard the fund's interests.
Nykredit will at all times make its own decision prior to casting its vote. For purposes of the most efficient handling of meeting documents, casting of votes and monitoring of potential breach under this voting policy, Nykredit has retained a proxy voting adviser. The adviser, along with Nykredit's other advisers, will make analyses available to Nykredit prior to Nykredit's dialogue with the company, allowing Nykredit to assess the company relative to other corporate governance standards. As part of its management, Nykredit is in dialogue with the companies, and will, if possible, communicate any doubts Nykredit may have before voting against the specific company's board recommendations. Depending on the nature of the issue at stake, Nykredit will consider which measures will be most effective. Issues may include the involvement of the Chairman of the Board of Directors, collaboration with other investors, communication before and at the annual general meeting and not least presentation of own proposals at the annual general meeting. The individual portfolio manager makes the final decision in these matters and determines whether a position should be sold. On an annual basis, Nykredit's Sustainable Investment Forum and the Board of Directors of the individual investment funds evaluate the need for and the efforts made with respect to developing this policy.
Nykredit's investment management company carries on equities lending, but Nykredit reserves the right, from time to time, to recall equities.
In line with its expectations for companies to demonstrate transparency, Nykredit will publish information on voting activities to its investors. Information is, inter alia, published through the annual reporting made by the individual investment fund and on the fund's website. This policy will also be available on the website. Nykredit has signed the UN PRI's Principles of Responsible Investment, obliging Nykredit to be an active owner, to collaborate with other investors on these issues and to report on its activities and progress in this area. Nykredit's report on these efforts is available on Nykredit's and UN PRI's websites.
Sustainability in the investment process
Nykredit believes that sustainability may be a driver for reduced risk and better performance. This is why Nykredit uses data describing companies' corporate sustainability performance (environmental, social and governance criteria) in the investment process. These criteria are used as part of the risk surveillance and increasingly also as part of the selection process.
Sustainability analyses are also used in the selection and evaluation of our external managers as well as selection and monitoring of alternative investments.
To customers who have another approach to responsible investments, Nykredit offers products and solutions that reach further. As a minimum, all such products comply with Nykredit's sustainable investments policy.
Nykredit's ambitions of sustainable investments also include government bond investments. Our investments are based on compliance with international law. Also, we believe that democracy and human rights may improve returns.
Government bond investments may contribute positively to the development of a country but require vigilant investors. Therefore, Nykredit's guidelines are based on three steps:
1. Exclusion of countries that are subject to financial transaction sanctions or sanctions against the leaders of specific countries.
2. Inclusion of democracy and human rights in the investment process.
3. The OECD country risk classification is used for continuous monitoring of investments.
If a portfolio manager or an external manager wants to buy government bonds from a country in the lowest or second-lowest category of the OECD country risk classification (6 or 7), the portfolio manager or external manager must make a sustainability assessment of the investment. Nykredit's Sustainable Investment Forum will then decide, on the basis of the sustainability assessment, whether the investment is in compliance with Nykredit's policy. If not, the country is excluded.
Nykredit's Sustainable Investment Forum
Nykredit's Sustainable Investment Forum has the task to fill in the framework of Nykredit's sustainable investments policy. The Forum meets four times a year to decide on active ownership and exclusions, and to further develop integration of sustainability in the investment process.
Knowledge sharing and development
Sustainability and responsible investments are not an exact science. Consequently, part of our work in the area of sustainable investment is to understand new trends, further develop methods and share our knowledge. We do that in UN PRI, Dansif and through the direct contact with our customers.