Active Ownership Report: 2019 Danske Bank Asset Management February 2020 Active Ownership Report: 2019 the Two Parts of the Report
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Active Ownership Report: 2019 Danske Bank Asset Management February 2020 Active Ownership Report: 2019 The two parts of the report When customers entrust us with their assets and savings, it is our duty to serve their interests by providing investment solutions with the goal to deliver competitive and long-term performance. Our firm commitment to Sustainable Investment with ESG Inside is an integral part of this duty. ESG Inside is about making better-informed investment decisions – addressing issues of risk, problems, and dilemmas, and influencing portfolio companies through active ownership to contribute to a positive outcome. Active ownership – through direct dialogue and voting at the annual general meetings – is an important part of our ability to create long-term value to the companies we invest in and to our customers. We believe it is more responsible to address material ESG Part 1: Part 2: matters as investors rather than refraining from investing Engagement Report Voting Report when issues of concern arise, leaving the problem to someone else to solve. Our portfolio managers are the change agents who can impact companies to manage risks and opportunities. The aim of our Active Ownership Report covering two parts ‘Engagement Report’ and ‘Voting Report’ is to provide our customers and stakeholders with regular updates on our progress and results. 2 Active Ownership Report: 2019 Part 1: Engagement Report This presentation is intended to be used as marketing material as defined by the European Directive 2014/65/EU dated 15 May 2014 (MiFID II) in Austria, Belgium, Denmark, Finland, France, Germany, Luxembourg, the Netherlands, Norway, Sweden, Switzerland and the United Kingdom. Engagement Report introduction We believe that fund-manager-driven dialogue with companies is the most effective as the investment teams are the experts of their respective strategies and portfolios, and tasked with the buy/sell decision. Our investment teams engage on a regular basis with companies on material ESG matters to understand their risks and opportunities, and to support their growth and development. We log and monitor company dialogue and progress to ensure a structured engagement process. 4 In 2019, we have had the following engagement activities Companies 544 Country domiciles 37 ESG engagement topics 105 Interactions 909 5 We have engaged primarily with small, mid & large cap companies 13% 1% 4% 24% 24% 33% 2% Unlisted Nano Cap Micro Cap Small Cap Mid Cap Large Cap Mega Cap - <$50 mn $50-$250 mn $250-$2 000 mn $2 000-$10 000 mn $10 000-$200 000 mn >$200 000 mn 6 Sector distribution of companies engaged with during 2019 Health Care 9% Industrials Financials 20% 13% Utilities Real Estate 4% 2% Communication Services 4% Energy 12% Consumer Consumer Staples Materials Discretionary 10% 11% 9% Information Technology 6% Note: Global Industry Classification Standard (GICS) is used for sector classification. 7 Top 10 industries most engaged with during 2019 Number of companies per industry (Sector in bracket) Banks (Financials) 37 Oil, Gas & Consumable Fuels (Energy) 34 Machinery (Industrials) 22 Food Products (Consumer Staples) 21 Chemicals (Materials) 21 Metals & Mining (Materials) 19 Health Care Equipment & Supplies (Health Care) 17 Real Estate Management & Devel (Real Estate) 17 Energy Equipment & Services (Energy) 15 Beverages (Consumer Staples) 14 Note: Global Industry Classification Standard (GICS) is used for sector classification. 8 Engagement with companies domiciled in 37 countries 9 Split between ESG engagement themes Social 23% Governance 40% Environmental 37% 10 Split between ESG engagement themes across regions = Environmental 40% 39% = Social = Governance 21% 34% Nordics 35% 31% Rest of 27% the world 36% 39% 68% 5% 25% Eastern Europe Western & Southern Europe 11 105 ESG engagements topics have been addressed and discussed Waste & Hazardous Materials Management Energy Efficiency Materials Sourcing & Efficiency Regulations Energy Management Animal welfare Employee Health & Safety Corporate DisclosureCustomer Privacy Customer Welfare ESG Integration Over boarding Food Safety Automatization Technology Disruption Green Financing Biodiversity Environmental Incidents Dividends SDGs Responsible Gaming Competence Profit Warning Product Quality & Safety GHG Emissions Physical Impacts Of Climate Change Compliance Procedures Sustainability Ratings Responsible Marketing Sanctions Management of the Legal & Regulatory Environment Executive Composition M&A AgricultureLabour Standards Board Composition Product Design & Lifecycle Management Impact Of Tax Regulation Systemic Risk Management Product Development Ecological Impacts Corporate Governance Data Security Tax Issues Energy Consumption Capital Structure Air Quality Environmental Supply Chain Business Model Resilience International Norms & Principals Sustainable Transports Accounting Competitive Behaviour Restructuring Customer EducationAML Issues & Handling Future Fit Business Ethics Supply Chain Management Board Leadership Environmental Issues Palm Oil Production ESG Issues In Fish Farming Energy Efficiency Sustainable Shipping Sustainability Targets Green Buildings Sustainable Products Impact Measurements Anti-Corruption Issues & Handling Executive Compensation Share Buybacks Digitalisation Climate Neutrality Responsible Drinking Indigenous Rights Employee RetentionCircular Economy Personnel Turnover PPI Claims Regulatory Compliance Plastic/Recycling Products Ownership Structure Sustainability Integration & Reporting Impact Investment Resource Efficiency Energy Transformation Environmental Regulation Military Sales Process Activities in Occupied Territories Incentive Programs Data Privacy Access & Affordability Employee Engagement, Diversity & Inclusion Political Risk Sustainable Lending Human rights & Community Relations Research & Development Critical Incident Risk Management Quality Management Corporate Behaviour Decent Work & Economic Growth Anti-Trust Issues & Competitive Behaviour Sustainability Certificates 12 Most frequent ESG engagement topics across the E, S, and G theme Environmental Social Governance Rank Topic Count Rank Topic Count Rank Topic Count Product Design & Sustainability Integration 11 GHG Emissions 95 11 70 11 61 Lifecycle Management & Reporting 22 Energy Transformation 89 22 Product Quality & Safety 51 22 Dividends 52 33 Circular Economy 65 33 Customer Welfare 42 33 Business Ethics 51 44 Energy Efficiency 55 4 Access & Affordability 34 44 Corporate Governance 40 Waste & Hazardous Selling Practices & 55 38 5 25 55 M&A 40 Materials Management Product Labeling Business Model 66 Sustainable Products 34 6 23 66 Digitalisation 34 Resilience Supply Chain 77 Air Quality 33 7 22 77 AML Issues & Handling 33 Management 13 Top 3 among the 105 ESG engagement topics: GHG Emissions; Energy Transformation; and Product Design & Lifecycle Management = Environmental 95 89 = Social = Governance 70 65 61 55 51 51 52 42 38 40 40 Waste & M&A Corporate Customer Business Ethics Product Quality Dividends Energy Sustainability Circular Product Design Energy GHG Emissions Hazardous Governance Welfare & Safety Efficiency Integration & Economy & Lifecycle Transformation Materials Reporting Management Management 14 The majority of company interactions took place in the Nordic region 63 185 84 30 144 7 67 70 27 39 6 7 41 8 Rest of the world 3 44 34 5 11 10 13 Note 1: Five company interactions lacks domicile data 3 Note 2: ‘Rest of the world’ covers countries that are mainly outside map (excl. U.S.A.) 3 15 Most commonly addressed ESG topics across geography Energy GHG Efficiency Emissions Product Design & Dividends Circular Lifecycle Management Economy Circular Economy Restructuring GHG Energy Emissions Transformation Energy Transformation Business Ethics Sustainability Integration Circular & Reporting Economy Energy Corporate Transformation Governance 16 Company interactions are mainly one-to-one and with CEO, IR or CFO Type of meeting Share of meetings by level of participants 37.4% With other investors 40% 25.6% 18.1% One-to- one 60% 8.3% 6.3% 2.5% 1.0% 0.7% 0.1% CEO IR CFO Executive Vice Corporate Board of Treasury Other General President Sustainability directors Councel 17 Engagement examples: GHG Emissions Topic addressed 95 engagements in the following countries Among the 909 total engagements focused on GHG Emissions. GHG Emissions is the first most common topic for our portfolio managers to engage with companies on during 2019. GHG Emissions are emissions into earth’s atmosphere of any type of various gases contributing to the greenhouse effect. Company Example Sector: Industrials “Discussed with company on fuel consumption and CO2-emisions in drilling.” Sector: Consumer Discretionary “The company’s test of hybrid and electric cars to reduce CO2-emissions.” Sector: Consumer Staples “The company’s products with lower carbon footprint.” GHG Emissions Other topics 18 Engagement examples: Energy Transformation Topic addressed 89 engagements in the following countries Among the 909 total engagements focused on Energy Transformation. Energy Transformation is the second most common topic for our portfolio managers to engage with companies on during 2019. Energy Transformation is the shift from one type energy into another and might have major social, economic and political implications. Company Example Sector: Energy “Discussed the approach carbon separation technology.” Sector: Consumer Discretionary “The company’s plans for launching electric cars, R&D.” Sector: Energy “The company’s