Information about the Sustainability policy
‘Saxo Bank global sustainability policy’ outlines the way Saxo takes sustainable investments into account in the investment process, where risk, return and costs are part of the decision making. The objective of the Sustainable Investment Policy is to incorporate ESG criteria (Environmental, Social & Governance) in the investment process.
First and foremost our fiduciary duty is to steer on good risk-adjusted returns for clients. It is our belief that ESG should have a central place in an Investment Policy, and that companies can fulfil a leading role in its adoption. Additionally, we see an incremental customer awareness towards the global impact discussion which will result in (future) clients request for ESG products. However, clients may choose not to take these considerations into account, which potentially can result in higher risks related to ESG topics.
The reasoning for the sustainable policy are multiple:
- We believe that we should act and contribute to sustainability and besides the financial responsibility which we have as an asset manager, we find it important to socially contribute to society
- Society discussions have evolved over time and sustainability has become a more broadly discussed topic, fuelled by the Paris Climate Agreement
- (future) Client request and demand for sustainable products will probably rise
- Taking the competitive landscape into account , we believe that sustainable investing will be the standard in the industry; some competitors offer a sustainable DPM solution as default
- It is also a way to reduce portfolio risk as MSCI research indicates that high ESG-rated companies may be better at managing company-specific and operational risks. As a result, there is lower idiosyncratic tail risk to their share prices
- Regulation: sustainability is also part of the investment landscape as regulatory guidelines principles are set out in legislation
- Societal and regulatory focus on sustainable investing also makes the topic a reputational risk
Sustainable investment strategies in general
The generic forms of ESG are explained below. The purpose of sustainable criteria is to establish non-financial criteria such as environment, social aspects and corporate governance. Sustainable strategies can be implemented through different approaches of ESG integration, see figure 1:
- ESG integration in stock analysis
- Sustainability focus
- Thematic / Impact investing
The goal for using exclusions is to not invest in specific controversies on basis of social controversial activities. Normally, starting point is UNGC Principles, which is an international respected method following the ten UN Global Compact Principles. This methodology verifies whether a company meets with international accepted standards. A number of aspects are criticized, including human rights, working conditions, environment and anti-corruption . Additionally, other specific screens can be added, which is dependent on societal discussions or aligns with beliefs. Nowadays, these area’s include e.g. nuclear weapons, tobacco, thermal coal, oil sands. Societal views over the years evolved and a trend is to extend the list of exclusions. This means that policy should be reviewed periodically and adjusted likewise.
2. ESG integration
ESG integration can be done by excluding specific controversies (see above under 1), however, the goal of ESG integration in the analysis process is to reach a better ESG portfolio score. This can be done on specific defined measures, e.g. carbon & other greenhouse gas intensity reduction relative to the parent index, while controls for country, sector, stock weight, turnover & tracking error can be taken into account.
3. Sustainability focus
Sustainable focus results in selecting only the best performing stocks per sector, which can be implemented with the use of data providers. The level of ESG focus can differ and range from e.g. ESG leaders to best in class / SRI.
4. Thematic/Impact investing
These type of funds focus on a specific trend and/or generates a measurable sustainable outcome alongside a financial return (e.g. a water or clean energy fund).
Engagement is influencing corporate policy through shareholder activism. This can be accomplished in different ways. For example by starting a dialogue or a proactive behaviour concerning specific subjects. Engagement has not immediately influence at the selection of stocks, but discusses different themes with a company. However, when this don’t lead to improvements, a divestment could follow. Shareholder activism can also be realized by voting rights using share ownership.
International guidelines sustainable investing
To identify companies for sustainable criteria can be done by the 10 United Nations Global Compact Principles (UNGC principles). These principles are based on international treaties and guidelines. Therefore the principles are internationally accepted, widely used and recognizable in the investment industry for sustainability. The UN Global Compact is a set of 10 principles for responsible corporate behaviour in four areas: human rights, labour relations, environment, and anti-corruption.1
Saxo Sustainable Investment Policy
Sustainability is embedded in the investment framework of Saxo. It is part of the products we offer to clients, but also a part of the selection process of external managers. Saxo offers different discretionary investment solutions, while some of these vary per region and/or country. For that reason the sustainable investment policy is not restricted to one specific set of objectives. The sustainable specifics per product will be made clear in the product documentation. In general, we believe in a combination of exclusions, ESG integration, sustainability focus and engagement. Also, we leave the option open to include thematic and/or impact investing funds for specific product offerings.
The objective it to reach better ESG portfolio scores, ranging from (relative) light green solutions to more dark green options (with a sustainability focus). This can be done through enhancements and/or exclusions with a set of focus points. Furthermore, the asset managers need to have active stewardship (voting and engagement). This differs per asset manager and will be weighed in the investment decisions.
For all discretionary products, we or the external asset manager select ETF’s and/or active funds. We have fund/instrument selection policies, which includes specific selection restrictions. In the selection process of investments funds (ETF’s & actively managed funds), risk (absolute and relative risk, tracking error), return (this should be in line with a regular benchmark), costs (this should be in line with regular funds) as parameters to analyse are taken into consideration. The selection of funds is aligned with the selection criteria written down in Saxo policies: the scorecard for external providers.
Visualized the Saxo sustainable policy is shown in figure 2:
Figure 2: Saxo levels of ESG
As the sustainability landscape changes over time, the external policy will be reviewed periodically (at least every two years) and adjusted when appropriate due to changes.
1 for a detailed description see https://unglobalcompact.ca/the-ten-principles
Last updated: 10th March 2021