We create returns with responsibilityMegatrends & business implicationsGlobal outreachResponsible Investment & Governance Annual Report l 2010
We create returns with responsibilityThe pace of global change is faster than ever and We have also engaged with many institutionalthe challenges in terms of our future development clients in order to understand their growingand economic growth are becoming increasingly interest in responsible investment. The messagesclear. During 2010, Nordea1 published a “White from company meetings as well as client interac-Paper” on Global Megatrends impacting both the tions are clear. ESG issues are more material thanpresent and the future. Demographic changes, before and given future challenges they willwater scarcity, urbanisation and climate change become more integrated into day-to-day business.are long-term material trends impacting millionsof people and entire generations. Sometimes the Products and services of the future, including ourfuture is not about the opportunities we anticipate own, will be developed and produced with far moreor the risks we ought to manage with regard to this, integrated ESG responsibility than ever before.it’s more about the active choices we make. Why? Because we have a choice. During 2010, we have continued our journey, we have mobilised ourAnd we, still, have a choice. We have a choice in the knowledge, experience and influence as investorsway we invest and can have an impact on how to make a difference – to push and cajole, inducecompanies we invest in manage their environmen- and incentivise companies and ultimately markets,tal, social and governance (ESG) risks and oppor- to produce better outcomes, more long termtunities. We have a choice to invest in companies oriented strategies. Or, in other words, to price inthat are doing a better job of managing relevant Responsibility, to internalise future in the way weESG issues, on for example safety management manage assets today.issues and, in the aftermath of the BP debacle,we need no reminder that the externalities can be Our vision is clear. Returns with Responsibility.significant.During 2010, we have engaged with companies onthe ground in India, Africa, Asia, Russia, NorthAmerica, and in the Nordic countries in order toimprove their performance regarding managementof ESG issues. And we can see changes. We can seegradual integration of key ESG issues into tradi-tional business operations as well as great uncer-tainty as to future development. For companiesoperating globally management of ESG issues hasbecome a business driver, improving risk manage-ment and enveloping business opportunities.1. Throughout the report Nordea is used as a reference to Nordea’s Sasja Beslikfund companies and Nordea Investment Management. Processes Head of Responsible Investment & Governanceand practices described in this report cover our role and responsibilityas an asset manager.
In 2007 we signed the United Nations Principles for Responsible Investments (UNPRI). In February 2010 we took a step further by implementing a new strategy on Responsible Investment.Our ResponsibilitySince the first Responsible Investment (RI) policy Products & serviceswas launched in 2007, all funds and portfolios During 2010, we have initiated the development ofmanaged by Nordea are screened for companies RI funds where ESG is part of the product’s DNA.verified for violation of international norms These funds are scheduled to be launched in 2011regarding environmental protection, human rights, and are in the forefront of RI developments andlabour standards and business ethics. The results have both global and local focus. We have alsoof the screening, conducted twice a year, are tested and started the implementation of an “ESGreviewed and assessed by Nordea’s RI committee. compass” tool for our institutional portfolios andThe committee decides on the level of engagement selected clients. ESG Compass is a tool enablingwith companies verified for violations. Aside of client’s full insight in the ESG status of theirthis Nordea does not invest in companies involved portfolios. ESG Compass also consists of oppor-in the production of illegal weapons2. tunities for improvements and changes in line with clients’ policies and expectations.Analysis & engagementIn February 2010 a further step was taken by Knowledge & competenceimplementing a new RI strategy. The new strategy In line with the new strategy a dedicated Respon-is based on an increased focus on in-depth ESG sible Investment and Governance team has beenanalysis and engagement activities. Throughout formed. The team has long experience within theour ESG analysis companies’ overall management area and was in 2010 awarded by Financialpractices regarding key ESG issues are assessed Hearings as Best team within the ESG sector intogether with their governance structure for these Sweden.issues. Based on the analysis, companies areselected for proactive engagements dialogues. The 2. Illegal weapons comprise biological weapons, chemicalfocus is on transferring knowledge and active weapons, non-detectable fragments, blinding laser weapons, anti-personnel mines and cluster munitions.participation in the development process.Our approach to external fundsIn our process of selecting external funds and managers, we place emphasis on managers having investmentprocesses addressing RI in an adequate manner. As a signatory to the UNPRI, we encourage our selected funds and managers to actively support these principles.We report on our screening and active ownership activities regularly and ask for feedback using a “comply or explain”approach.
The world is changing at a rapid pace. Nordea has identified five major ESG challenges that we believe will shape the economic, social and business environment in the years to come.Megatrends & business implicationsChanging demographics alternative energy). Energy users, such as realFrom a business viewpoint, the changing demo- estate, transport and energy-intensive manufac-graphic patterns are expected to have various turing sectors, will need to mitigate their energyconsequences. For example, concerning produc- use and make it less CO²-intensive by introducingtion centres, the proximity to customers will be a carbon-neutral energy policy. 70% of all CO²important. Also, low-cost production leads to emissions in the industrial sector come from threeinnovation and re-location strategies. This will sectors: steel, cement and chemistryrequire companies to properly manage their socialand environmental challenges. Another conse- Shortage of human capitalquence will be a change in consumer base and The European workforce is ageing very rapidly. Byprofile: new market opportunities will emerge and 2050, more than one-third of Europe’s populationexisting products will be redesigned to satisfy the will be over 60. The struggle for competentdemands of new consumers. Finally, due to rapid professionals will grow more intense. This meansurbanisation, major infrastructure investments in that companies will need to look beyond their owndeveloping economies will be needed. borders to find these people, pushing up wages and benefits. Attention to intercultural sensibilitiesWater scarcity will need to rise correspondingly. Finally, compa-From a business viewpoint, the water challenges nies and employees will need to deal with restruc-provide enormous business opportunities for turings, relocations and increased offshorecompanies active in water purification and water operations. These topics will clearly impact humanmanagement services (utilities). Builders of water resources departments, as well as client relationinfrastructure (sewage plants, pumps, valves) will management.stand to benefit as well. On the process side,water-intensive sectors such as Metals and More attention to corporate governanceMining, Chemicals and Forest Products will need to Regarding these business challenges, all sectorsadapt their business models, as will ultra-pure are clearly impacted by the justifiable demand ofwater consumers such as the Semiconductors long-term investors for better corporate govern-sector. Companies that acknowledge water scarcity ance. It is in their own interest, since it enablesin their processes will have a competitive edge. optimal company strategic decisions and will facilitate access to capital in the markets.Climate changeClimate change has obvious business implications.Energy providers need to rethink the relativeattractiveness of their product mix (coal, oil, gas,4 RESPONSIBLE INVESTMENT & GOVERNANCE
“Climate change confronts investors with significant long-term challenges and theability to address such risks and opportunities will be a critical competitive factoras we go forward – for companies as well as for investors. Private investors andcompanies play a critical role in efforts to combat climate change and the lion’sshare of the investments necessary to tackle this challenge must come from privatesources.” Ole Beier Sørensen, Chairman of IIGCC and Chief of Research at ATP, Nordic Partner to the CDP along with Nordea Institutional Investors Group on Climate Change (IIGCC) is forum for collaboration on climate change for European investors “Climate change is not just an environmental challenge, but also one that affects the health and livelihood of millions of people because of the links to issues such as poverty, economic develop- ment and population growth. We believe that the most effective response to the challenges associated with climate change can only be achieved through a united global effort that takes ac- count of the wider context of sustainable development.” Chris Lewis, Head of Environment, AstraZeneca
We believe that acting responsibly is a pre- requisite for a company to achieve long-term good returns. Our ESG analysis enables us to identify companies that operate in line with our policy and deliver long-term value.Identifying companies performing wellIn line with the new RI strategy we have during the and consumers for years to come. We anticipate ayear initiated our in-house environmental, social wide range of new safety challenges arising fromand governance (ESG) analysis and developed our shale oil, oil sands, pre-salt and the Arctic, inown criteria and methodology. Our analysis is based particular. We assess that regulators are likely toon a positive approach. Throughout the analysis seek to strike a balance between producingcompanies’ overall management practices regarding economically with greater scrutiny on safety. Boomkey ESG issues are assessed together with their and bust investments and the drive towards costgovernance structure for these issues. The analysis efficiencies have left the sector dealing with theaims to identify best company practice and compa- safety risks of ageing physical and human assetsnies that manage their risks, opportunities and/or and loss of control via subcontracting.develop sustainable products. Our in-house analysismainly focuses on Nordic companies, since the Nordic companies: Best PracticeNordic region is our local market. For global compa- Governance structurenies we process and assess ESG analysis conducted SKF introduced BeyondZero in 2005, with the aimby our external service provider MSCI Inc. to realise business objectives in such a way that negative environmental impact is minimised whileDuring 2010, the focus on ESG analysis has been positive impact is enhanced. The BeyondZeroour largest holdings, mainly in the Nordic countries target continuously influences SKF’s product andbut also globally. In line with our objectives for 2010 solution development.we have finalised ESG analysis for a majority of our50 largest holdings. We have also met about 40 of Yara International’s approach on CSR is toour largest holdings and discussed how they manage contribute to solving global challenges while at therelevant ESG risks and capitalise on ESG opportu- same time seek business opportunities. Thenities. company is committed to inspire innovation and to identify solutions that create value for the companyThematic analysis of high risk sector as well as for society at large.In June Nordea decided to suspend furtherinvestments in BP. In relation to this we conducted Management of key issuesan in-depth analysis of 25 companies in the Møller Mærsk has aligned its core businessintegrated oil and gas sector. The entire industry, strategy with innovation, development of sustain-from mature super majors to smaller companies, is able business practices and environmental care.now investigating at how environmental protection The company has identified its key issues and allshould be conducted – with stricter safety regula- business units have a governance, managementtions and higher costs on the cards for producers and reporting structure in place.6 RESPONSIBLE INVESTMENT & GOVERNANCE
Sandvik has identified relevant key issues and has A company’s viewdeveloped policies, processes and tools to addressenvironmental pollution, violation of human rights, During 2010 we met with company representa-corruption and health and safety. Agents and tives from Lassila & Tikanoja, a company special-distributors have been identified as groups with ised in environmental management and propertyrisks related to business ethics. and plant support services. Topics for discussion were management of key ESG issues, such asTransparency supply chain management, health and safety forOutokumpu’s has included comments from its the company’s employees as well as how theauditors (Price Waterhouse Coopers) in its company through their products contributes toSustainability report. The report covers relevant sustainable development. Keijo Keränen, Head ofESG areas and includes quantitative data together Investor Relations, commented the following aboutwith long and short-term targets. the dialogue: “We appreciate that we got honest feedback andFortum’s emission intensity has almost tripled in ideas on how to improve our sustainabilitythe last three years; the main reason is the acquisi- reporting and practices. Our dialogue withtion of the Russian energy company TGC-10 Nordea gave an initial boost for an internal(OAO Fortum today), which has 5% of its capacity discuss about how to become more transparentfrom coal fire. An extensive investment programme about our work with corporate responsibility.”was previously established in OAO Fortum in orderto improve performance not only in electricityproduction capacity but also to bring the sustain- Analysis dialogues 2010ability level up to Fortum standard. The companypresents targets for how to improve the Russian • Addtech • Orklaoperations by 2012, 2015 and henceforth. • Anglo Platinum • Outokumpu • A.P. Møller Mærsk • OutotecConclusions from the Nordic analysis • Atlas Copco • RautaruukkiA general conclusion from the analysis is that • Astra Zeneca • Renewable Energyfatalities reported by the companies often are • Banco Santande Corporationrelated to contractors. We have therefore paid • BP • Sampoextra attention in our analysis as to whether or not • Carlsberg • Sandvikcontractors are monitored from a safety perspec- • Danske Bank • SCAtive. Almost all companies state that they have • DnB Nor • Scaniaresponsibility for all contractors operating at their • DSV • Schibstedsites, but few can describe how safety is assessed • DS-Norden • SEBwhen evaluating a new contractor. • FLSmidth & Co • SSAB • Fortum • Statoil HydroWater issues and biodiversity are areas of increas- • Hennes & Mauritz • Telenoring concern to companies. Changed weather • Konecranes • Tele 2patterns and water scarcity is a reality for many • Lassila & Tikanoja • TeliaSoneraglobal companies. Companies are still foremost • Megafon • Tomra Systemsfocusing on their own operations but should, in line • Monsanto • UPM-Kymmenewith carbon management, also address water within • Nestle • Vestas Wind Systemsthe supply chain and from a product development • Neste Oil • Volvoperspective. Best practice identified is to develop • Nokia • Wal-martwater footprints and to disclose number of opera- • Nordea Bank • Yara Internationaltions related to water scares and bio sensitive areas. • Oriflame RESPONSIBLE INVESTMENT & GOVERNANCE 7
Creating returns with responsibility There are several ways We also con- to identify companies duct research for ESG research and to find compa- analysis. The drivers are nies that are among other; sector, verified to vio- country and risk aspects. late interna- tional norms. When analyzing com- panies we assess their management and per- formance regarding key ESG risks and opportunities. Dialogues are initiated with companies violat- ing international norms and companies with poor ESG manage- ment practice. If the company im- Divestment proves we continue to is used as a invest. If the company last resort is not able to change in when there a first stage we con- is no other tinue our dialogue. option.
We engage to change. Nordea initiates engage- ment dialogues to change behaviour and to enhance business performance by addressing business practices used by the companies we invest in.Our engagements & dialoguesNordea prioritises engagement with companies During 2010 we have met about 50 Nordic andidentified as being involved in verified breaches of global companies. It is our practice to engage ininternational environmental, human rights, labour direct face-to-face dialogues with companies.rights and business ethics-related norms. As ofDecember 2010, Nordea is engaged in 16 norm- Selected engagements are reviewed by Nordea’s RIbreaching companies worldwide. We also priori- committee. The committee decides on the level oftise proactive engagement dialogues with our engagement and also whether a company should belargest holdings. This is carried out by in-house excluded from the investment universe due to lackexpertise, our external engagement service of progress. When a company is no longer involvedprovider Hermes Equity Ownership Services or in breaches of international norms, it will re-enterthrough cooperation with other stakeholders. the investment universe. Focus area – EnvironmentEnvironmental norms establish a commitment operations are managed from an environmentalaimed at upholding the world’s ecosystems and perspective. We have encouraged these companiesbiodiversity in the face of economic development. to improve their disclosure on environmentalThe business reference guide states that compa- policies and practices. One company has beennies in sectors facing great environmental risk provided with best practice examples for its ownshould be sure to have enhanced policies and sustainability reporting and concerning thepractices in place to handle this. company’s participation in the Carbon Disclosure Project (CDP) survey.Lack of transparency a problemNordea is engaged with norm-breaching compa- Our engagement with one of the companies took anies that are failing in their environmental respon- significant step forward when they published theirsibilities by lacking in their remediation work. first Corporate Social Responsibility (CSR) reportSome companies are not willing to disclose specifically addressing its approach to overseasinformation and lack transparency as to how operations. Following our discussion concerning Active ownership Engagements 2010 16 & dialogues 2009 Nordea is exercising active ownership through engage- 14 ments & dialogues. As of December 2010, Nordea was 2008 2007 10 engaged in 16 norm-breaching companies worldwide. 7
the CDP survey, the company also notably im- Ongoing engagements:proved their answers in this year’s survey. Another Chevron, CNOOC, Vedanta Resources,company has during the year appointed a Chief Royal Dutch Shell and LukoilSustainability Officer and is now drawing up aCSR action plan for the company. Focus area – Human rightsInternational human rights norms aim to protect international norms by exploiting natural resourc-people from political, legal and social abuse. The es in Western Sahara. Nordea has been engaged inbusiness reference states that companies should several companies within this area; all of them havesupport and respect the protection of these norms been involved in sourcing of phosphate rock.and ensure that they are not complicit in activities However, we are also investigating companiescharacterised by human rights abuses. involved in sectors such as shipping, fisheries and oil and gas.Western SaharaWestern Sahara has been on the UN’s list of Positive results – Controversial sourcingNon-Self-Governing Territories since the 1960s. Nordea’s engagement with the Mosaic CompanyWestern Sahara was invaded by Morocco in 1975 (US) was successfully ended in June 2010. Mosaicand the area has been occupied ever since. Sourc- has now disclosed that they have discontinueding natural resources from this occupied area their purchase of phosphate from Western Sahara,contravenes the right to self-determination unless which has also been independently confirmed. Theit is carried out with full respect of the interests company has acknowledged the human rightsand needs of the people. The business reference issues involved with importing phosphate fromrequires companies to adopt a human rights policy Western Sahara.and ensure that they take into account the right toself-determination. Companies should also Ongoing engagementsrequire all business partners to adhere to this. Potash Corporation of SaskatchewanControversial sourcing of phosphate rock Completed engagementsIn recent years several companies have been The Mosaic Companycriticised and alleged to have acted in breach ofOccupied Arab Territories Reputational risk as a financial parameterFollowing the 1967 Palestinian-Israeli War, the In our dialogues we have expressed concerns aboutIsraeli army occupied a number of Palestinian the companies’ involvement in the occupied territo-territories and the Israeli settlements began shortly ries. We have informed them that we believe thatthereafter. The Israeli settlement has, according to these activities can expose the companies to reputa-the UN, no legal validity and the companies that we tional risks which might have a financial impact onare engaged in on this issue are acting in contra- their business. As a consequence, we have urged thevention of a UN resolution calling upon states not companies to adopt a more systematic approach toto provide Israel with any assistance to be used building in extra financial risks throughout theirspecifically in connection with settlements in the business processes. It has been estimated that oneoccupied territories. of the engagement companies lost USD 7 billion in10 RESPONSIBLE INVESTMENT & GOVERNANCE
contracts due to the reputational impact of Ongoing engagements:involvement in this activity. The companies have Alstom, Veolia Environnement and Dexiataken our views into account but have yet not com-mitted to enhancing their transparency.Positive results – human rights effective in curbing violent behaviour among theNordea has been engaged in a dialogue with ICICI bank’s recovery agents and we therefore success-Bank since the beginning of 2008. The company fully completed our dialogue with the company inhas been employing recovery agents that made use the end of 2010.of illegal coercive methods to recover loans. ICICIBank has now improved procedures to audit its Completed engagements:recovery agents and its training of them. It has also ICICI Banksignificantly increased the board’s supervision ofthis issue. Actions taken by the company have been Focus area – Labour rightsWork is part of people’s daily life and is vital for a also apply to all subsidiaries. In one dialogue, weperson’s dignity, well-bein g and personal develop- conducted a two-day on-site visit to investigatement. International norms set standards which how the company in practice is managing staff-encompass freedom of association, the right to related issues. We have also addressed how overallcollective bargaining, forced labour, child labour ESG issues are managed across global operations,and discrimination. The business references guides particularly in developing markets. As a result, astates that companies should ensure that their company has increased its local management atlabour policy is based on ILO conventions and their troubled factory. Furthermore, it has pub-actively inform their employees of labour rights. lished its first Corporate Social Responsibility report. The report specifically addressed theViolation of trade union rights company’s issue in relation to the troubled factoryMost of Nordea’s engagements in this area are and how it has addressed it.with companies which are reported to be violatingtrade union rights. In our dialogues we have Ongoing engagementsexpressed the importance of developing coherent The AES, Hankook Tire, Wal-Mart Storespolicies regarding organised labour which should and Deutsche TelekomExclusionNordea believes in positive means of engagement where we actively contribute to improvement of company’s manage-ment of key environmental, social and governance practices. We also believe that exclusion seldom is constructive andlong-term oriented. Direct divesting from companies with poor management practices is used as a last resort. We exclude companies when violations are severe and when companies are unwilling to change or improve theirbehaviour. Nordea does not invest in companies which are involved in the development, production and maintenance ofillegal weapons*.* Illegal weapons comprise biological weapons, chemical weapons, non-detectable fragments, blinding laser weapons, anti-personnel mines andcluster munitions
Focus area – Business ethicsCorruption is considered to be one of the greatest local industry forums to promote increasedobstacles to economic and social development. It transparency regarding bribery and corruption. Aalso distorts competition and impedes the devel- company engaged has been provided with bestopment of fair market structures. For companies to practices examples on anti-corruption policiesbe able to handle these issues they need to develop and structures. Since we started our engagementeffective anti-corruption policies and manage- the company has established a set of relevantment systems. guidelines on ethics and anti-bribery and devel- oped a website to encourage employees as well asCorruption – institutionalised phenomenon suppliers to engage in whistle-blowing.In some countries the lack of good business ethicspractices is institutionalised. We have therefore Ongoing engagementsaddressed the issue on a policy and industry level Hyundai Motorin addition to engagement with specific compa-nies. This has been conducted by participating in Positive results from dialogue with BP After a through assessment Nordea in June During the autumn, the company announced that it decided to suspend investments in BP. The decision would create a new safety division with sweeping was taken after the tragic environmental disaster in the powers to oversee and audit the company’s opera- Gulf of Mexico and based on lack of information avail- tions around the world. The division will have authority able regarding systematic risk management of safety to intervene in all aspects of BP’s technical activities. measures by the company. The decision has been It will also have its own expert staff embedded in BP’s followed up by a close and intensive engagement with operating units and be responsible for ensuring that all the company in order to improve its disclosure of key operations are carried out to meet common standards information as well as management of key health and and to monitor compliance with these standards. safety risks in other BP operations. The new division is designed to strengthen safety “Nordea has managed to achieve positive outcomes and risk management across the company and will in the engagement with BP and in December we report directly to the chief executive. The company will decided to re-evaluate our investment decision and furthermore conduct a fundamental review of how it approved new investments in the company.” incentivises business performance, including reward strategy, with the aim of encouraging excellence in safety and risk management.12 RESPONSIBLE INVESTMENT & GOVERNANCE
We believe that understanding of business conditions in the companies we invest in is one of the key elements influencing positive change. Field visits are one way of learning more.Global outreachIndia forcing hundreds of thousands of people to leave theirIn the beginning of May Helena Hagberg and Sasja homes in order to extract precious metals.Beslik took part in a field visit to India. The purposewas to meet the planting seed manufacturer Monsanto Anglo Platinum is prospecting for the installationand investigate the working conditions for cotton of new mines in a very densely populated area. Infarmers. the last five years Anglo Platinum has moved close to 200,000 people in order to gain access toMonsanto is one of the world’s largest manufac- platinum, a precious metal for which there isturers of planting seeds. The company has, growing demand worldwide.through its operations in the agricultural sector,for several years been accused of contributing to As a part of our visit in South Africa we have urgedan increased number of suicides among cotton Anglo Platinum to invite an independent reviewerfarmers. with representatives from local and international academia, experts and business leaders. We haveWe met Monsanto’s representatives as well as the also recommended that Anglo Platinum shouldrepresentatives of different trade unions and other revisit potential miss leaps in the compensation andinterested parties. The input we received con- re-establish direct contact with people living in thefirmed that the frequency of suicides has declined villages on issues related to resettlement and consul-in recent years. The fundamental problem in rural tation.India does not involve Monsanto; it is rather theabsence of a functional financial system. There are Swedenno banks and no reliable ways of borrowing money. In October Helena Hagberg visited SSAB and their steelConcerning Monsanto we draw the conclusion that plant in Oxelösund. The overall theme of the visit wasthe company lacks an overall strategy for handling corporate responsibility and working conditions.a series of social and environmental aspects oftheir operations in India. However, it is difficult to During the visit presentations by SSAB represent-detect signs of the company contributing in a atives were followed by a tour around the manu-conscious way to worsening the farmers’ prospects factory plant. Issues such as health and safety,for a better life. diversity, supply chain management and recycling of production waste were discussed.South AfricaIn August Sasja Beslik went to South Africa to meetrepresentatives of the world’s biggest mining company,Anglo Platinum. The company has been accused of RESPONSIBLE INVESTMENT & GOVERNANCE 13
During the year we have conducted pro-active engagementdialogues with companies on the ground in India, Africa, Asia,Russia, North America and the Nordic countries. India • Monsanto has been alleged of contributing to an increased number of suicides among cotton farmers in India. • We recommended Monsanto to develop country operational strategy for management of key ES issues as well as to develop educational process for field officers. South Africa • Anglo Platinum has been alleged of forcing people to leave their homes in order to extract metals in South Africa. • We recommended Anglo Platinum to conduct dialogues with independent reviewer and to re-establish contact with people living in the villages on issues related to resettle- ment and consultation.The steel industry is a high-risk sector with a but also before signing new contracts.significant environmental impact and high risksrelated to safety. Safety in general, and in relation Russiato contractors has been an area of discussion with In December Helena Hagberg went on a field visit toseveral of the Nordic companies that we have Russia. The visit was triggered by research made onanalysed during the year. Best practice identified is Russian companies combined with the fact that manyto measure and include contractors’ safety per- European companies operate in Russia.formance in group targets, as they say “what getsmeasured gets managed”. Companies need to Russia is identified by Non Governmental Organi-evaluate their contractors not only in operations sations (NGOs) as a country with many challenges14 RESPONSIBLE INVESTMENT & GOVERNANCE
Sweden • ESG analysis conducted on SSAB and the wish to see how the company in practice works with employee’s working conditions triggered the visit. • We recommended that SSAB should improve reporting, regarding supply chain manage- ment, especially concerning safety perform- ance related to contractors. Russia • ESG analysis conducted on Russian and European companies triggered the visit. • Companies operating in this high risk market need a solid risk management system and a strong internal commitment to anti-corruption in order to limit the risk.when it comes to corruption and bribery, human management system needs to be adopted. As onerights, environmental aspects etc. International as organisations stated, “companies can’t do businesswell as Russian companies are limited in their in Russia without bribes but they can limit the risk”.disclosure as to how they manage and address Focused risk-mapping, a solid risk managementthese risks. During our visit we met with NGOs, system, a strong internal commitment to anti-companies and investors. The challenge of doing corruption and good lawyers are, according tobusiness in Russia from an ESG perspective was both NGOs and the companies, the recipe to limitnot understated by any of the companies or the risk.organisations we met. It is obvious that companiesneed to be on top of things and that a strong risk RESPONSIBLE INVESTMENT & GOVERNANCE 15
Corporate governance is about safeguarding shareholders’ interests in the best way possible. Good long-term development benefits shareholders, employees as well as other stakeholders.Corporate GovernanceCorporate governance deals with the relationship To reach our goals we aim tobetween shareholders and the companies’ boardsand executive management. From the standpoint • Maintain a dialogue with companiesof Nordea, corporate governance shall be exer- • Cooperate with other shareholderscised on the basis of the shareholders’ common • Participate in nomination committeesinterest in good investment returns. • Handle issues regarding takeovers, incentive programmes, capital structureA long tradition of active ownership • Follow-up of regulatory issuesNordea is an active owner and has a long tradition • Voting at general meetingsof handling corporate governance matters such asvoting and engagement in companies. Nordeagenerally considers that exercising good corporate In line with our guidelines we believe that thegovernance is crucial to the creation of value in following issues are of importance:companies, and plays a key role in promoting • Composition and function of the board ofcompanies’ development towards better results directorsthrough active ownership. We have voted regularly • Shareholder rightsat general meetings since the 1980s and have • Disclosure and transparencyparticipated in nomination committees in a large • Compensationnumber of listed companies since the 1990s. • Range of takeover defencesEngagements in companies began in the early1990s and have since increased successively over Progress made in Swedenthe years with the main focus on listed companies Nomination committees are well established andand stock markets in the Nordic region. the Swedish nomination committee model helps to:Corporate governance guidelines • Create a structured and transparent processNordea’s first guidelines on corporate governance governed by the ownerswere adopted in 1996. The last revision, the • Separate and clarify the roles betweenseventh, was adopted in 2009. Long-term value shareholders and boardcreation through engagement and voting is the • Enable shareholders to create value in theoverall aim with our corporate governance activi- long term when they have more influence onties. the composition of boards Active ownership 158 2010 in the Nordics General meetings Nordea is exercising active ownership through partici- 171 2009 pating in general meetings. During 2010 we attended 147 2008 2007 158 general meetings. 124
• Balance the risks for so-called non-control- be worth considering for the European Commis- ling shareholders if also involved in a sion when making an overview of the corporate nomination process when a so-called governance field. controlling shareholder is represented in the board Dialogue with the Finnish Securities Market Ass. During the first half of the year we initiated aDialogue with companies have increased and dialogue with the Finnish Securities Marketinformation to shareholders is progressing Association, which is the organisation responsiblesuccessively. Furthermore, almost all incentive for the Finnish Corporate Governance Code. Inprogrammes include some form of performance our opinion the code did not facilitate efficientcriteria and institutional investors are to a great nomination committees with shareholder repre-extent involved in the follow up of different sentation and we suggested an amendment to theregulatory issues. code which would incorporate nomination com- mittees including shareholders in the code. AActions and results 2010 revised code was presented in June and amongDialogue with the European Commission others the recommendations regarding nomina-Institutionella Ägares Förening för reglerings- tion committees was amended in line with ourfrågor på aktiemarknaden (IÄF), an association of views. The code entered into effect on October 1stSwedish institutional investors for regulatory 2010.matters on the stock market in which Nordea isone of fourteen members, wrote in August a letter Dialogues concerning incentive programmesto European Commission regarding its Green Prior to the shareholder meeting season Nordeapaper on corporate governance in financial had meetings with several companies, amonginstitutions and remuneration policies. The others MTG, SEB and TeliaSonera, concerningpurpose was to present our view on the questions planned incentive programmes. Many programmesin the Green Paper and furthermore share our are complex in design and in several cases we gaveviews and experiences as to what we believe could support firstly after changes were made in Special company events - some examples At Alpgot Agro’s annual general meeting Nordea company. However, both the auditors and the current voted in favour of a changed, and in our opinion, more board of directors judged that no financial damage advantageous compensation agreement with the was done and there were no grounds for any legal management company Alpcot Capital Management action. Based on this, Nordea did not support the (“ACM”). The proposal was based on an agreement appointment of a special examiner, but expressed reached between Alpcot Agro and ACM. However, criticism at the meeting. the proposal was not accepted because the required majority could not be reached due to ACM who is a At Cloetta’s annual general meeting Nordea voted shareholder, voted against the proposal. against the board’s proposal to amend the article of association of the company. The proposal, which was Prior to Kungsleden’s annual general meeting passed by the general meeting, will make it more Nordea had to evaluate a resolution from a sharehold- difficult to convert A-shares to B-shares. No proper er. The resolution concerned an examination of an motivation was presented to justify the proposal and action taken by two previous board members, who we regarded the proposal as not being in the interest may have started competitive business operations of all shareholders. while concurrently serving as board members of the RESPONSIBLE INVESTMENT & GOVERNANCE 17
shares. Nordea has in these cases supported the Nomination committees 2010/2011 mandate, however firstly after the board of direc- • Alpcot Agro • Karo Bio tors expressed the intention to purchase the • Arise (Nordea chairman) lowest-priced shares available. During the year • Axfood • Kungsleden Nordea has also participated in the public debate • BE Group • Lagercrantz concerning the risk for minority shareholders at • Bure Equity • Meda share buybacks, especially in markets where a dual • Cloetta • NCC class system exists, and has had articles published • Connecta • Opus Prodox on this issue in the Nordics as well as internation- • Dibs • Proffice ally. • Electrolux • Rezidor • Eniro • SAAB Dialogues concerning share (Nordea chairman) • Sectra issues without pre-emptive rights • Fabege • Sigma When companies applied for mandates to issue • JM (Nordea chairman) shares, for cash payment and with a deviation from • Kapp-Ahl • Studsvik the current shareholders’ rights of priority, we • ÅF voted no in the cases of Lundin Petroleum and Sectra. At the annual general meetings in CTT, New Wave Group, Orc Software and Ratos we Nomination committees 2009/2010 appealed to the boards not to use their authorisa- • Alpcot Agro • NCC tion for rights issues against cash payment. After • Bure Equity • Opus Prodox dialogues with Biotage and Proffice the boards • Cloetta • Orc Software decided to restrict the mandate to make it no • Eniro • Rezidor longer possible to issue shares for cash payment, • Fabege • SAAB after which Nordea gave support to the proposal. • HiQ • Sectra At Meda’s meeting we requested that the board, in • Kapp-Ahl • Sigma cases where mandates concerning issuance of • Karo Bio • Studsvik convertibles would be utilised, this should occur (Nordea chairman) • ÅF firstly with right of priority for the current share- • Meda holders, and otherwise be limited to a dilution of a maximum of 5 percent instead of the proposed limit of 10 percent.response to viewpoints presented. We voted no tothe incentive programme at Lundin Petroleum’s Takeover situationsmeeting since the proposal lacked performance As one of the largest owners in Munters we had torequirements for allocations to the management. handle the situation when two different companies presented competing public offers to Munters’Dialogues concerning share buybacks shareholders. After evaluating four different bidsAt the annual general meeting of Atlas Copco during the autumn we finally decided to accept theNordea voted no to the proposal concerning the last offer at SEK 77 per share, a premium of morerepurchase of A and/or B shares since it was not than 50 percent compared to how the share wasclarified that it was the lowest-priced shares traded before the offer and an increase of 13available, irrespective of the class of share, that percent compared to the first offer. We acceptedwould be acquired. Nordea initiated a dialogue the public offer on Biolin Scientific. At the end ofwith the companies MTG, SKF and Sweco since 2010 public offers were also presented to thethe proposal was presented in these companies, shareholders of Q-Med and Cardo, which we arewith two classes of shares quoted, indicating that currently evaluating.the mandate would be given for repurchase of18 RESPONSIBLE INVESTMENT & GOVERNANCE
As the largest asset manager in the Nordic region we seek to encourage best practice through active participation in international initiativesInternational initiatives & participationUNPRI Water Disclosure ProjectAs one of the first major banks in the Nordic coun- Nordea is a signatory to Water Disclosure Project.tries, Nordea on 1 November 2007 signed the The project is an initiative run by the CarbonUN’s Principles for Responsible Investment Disclosure Project and is supported by institu-(UNPRI). In connection with this our policy for tional investors. The aim of the project is to collectresponsible investment was launched. This policy and spread information concerning water-relatedshows how we adhere to the six principles. We risks and possibilities and addresses 300 globalreport on our activities and progress towards companies with water-intensive production andimplementing the UNPRI. This report is public water-related challenges. The first CDP Waterand available on the UNPRI website. Disclosure report was published in 2010.Sustainable Investment Forums Carbon Disclosure ProjectNordea actively participates in local sustainable Nordea is a signatory to Carbon Disclosure Projectinvestment forums, so-called SIFs which are (CDP). The aim of the project is to collect andindependent national forums that promote spread information concerning greenhouse gasresponsible investment. Nordea became a member emissions and climate change strategies. Nordeaof SWESIF in 2008, in DANSIF 2010 and was uses the information in the database in its ESGfounding member of FINSIF when the association analysis. CDP is a cooperation arrangementwas launched in June 2010. Nordea is represented between 534 institutional investors who togetheron the boards of SWESIF and FINSIF. account for over a third of the world’s investments. Nordea Bank is Nordic partner to the CDP and hosted in October the launch of the report in Sweden and in Finland.Sustainable value creationSustainable value creation (SVC) is a cooperation project involving some of Sweden and Norway´s biggest investors.The aim of the project is to influence listed Swedish and Norwegian companies in sustainable development andlong-term value creation. Nordea considers it essential for companies to work actively with environmental and socialaspects in its business; we therefore take part in the working team that drives the project in Sweden. In December, SVChosted a seminar and workshop for companies addressed in the project.
At the beginning of 2010 Nordea reinforced its commitment to Responsible Investment and adopted a new strategy. The strategy implies increased focus on ESG analysis and engagements and new modern products.The year aheadBy the end of 2010 we have achieved several Proactiveness: we will increase our transparencypositive outcomes and taken further steps forward and continue to develop our reporting to our keyon our journey. During the year, we have developed stakeholders. Engagement dialogues are central toour own ESG analysis criteria and methodology our RI policy, we will continue to seek to make aand met many of our largest holdings in face-to- difference and conduct more dialogues and fieldface meetings. We have also conducted pro-active visits. We also consider cooperation with otherengagement dialogues with companies on the stakeholders important in the pursuit to move theground in India, Africa, Asia, Russia, North market forward and will therefore continue toAmerica and the Nordic countries in order to actively participate in international initiativesimprove their performance regarding management contributing to sustainable development, forof ESG issues. We have also seen positive outcomes example CDP, UNEP, UNPRI and local sustaina-from our dialogues with norm-breaching compa- ble investment forums.nies and successfully completed two of theseengagements during the year. Innovation: when we signed UNPRI in 2007 we, among other things, committed to integrate ESGOur commitment is to deliver Returns with Responsi- issues into investment decisions. During 2011,bility and our strategy for the coming year is to focus one main focus will therefore be to seek even moreon: knowledge, proactiveness and innovation. effective ways to integrate our ESG analysis into our mainstream investment processes. NewKnowledge: we will continue to focus on in-depth modern RI funds, which are in the forefront of RIESG analysis and the development of an “ESG developments, are also scheduled to be launchedCompass” tool that will support the communication in 2011.of the analysis. We will also develop sector key issuepapers and, among other things, thereby increaseour transparency. In line with our “White Paper”on Global Megatrends we will continue to closelyfollow macro and micro trends and their implica-tions as well as corporate governance developmentsand implications for our investments.20 RESPONSIBLE INVESTMENT & GOVERNANCE
Responsible Investment & Governance Sasja Beslik is Head of Responsible Investment & Governance at Nordea. Mr Beslik previously served as Head of Responsible Investments at Banco/ABN AMRO and as a consultant for the World Bank on several projects in Africa and Asia. Mr Beslik is also chair- man of UNEP Finance Initiative’s Water Work Group. Helena Hagberg is Director of Responsible Investment & Gover- nance at Nordea. Ms Hagberg has previously worked with ESG research and corporate engagements at SwedbankRobur and Banco/ ABN AMRO. Ms Hagberg is chairman of the Swedish Sustainable Investment Forum, SWESIF. Antti Savilaakso is Director of Responsible Investment & Gover- nance at Nordea. Mr Savilaakso has previsouly worked with ESG analysis and corporate engagement at Responsible Research in Singapore, Dexia Asset Management in Brussels and ABN AMRO Asset Management in Amsterdam. Ylva Hannestad is Responsible Investment & Governance analyst at Nordea. Ms Hannestad is deputy board member of the Swedish Sustainable Investment Forum, SWESIF. Thomas Ehlin is Director of Responsible Investment & Governance at Nordea. Mr Ehlin is a board member of the Swedish Securities Council (Aktiemarknadsnämnden) and has also served as a member and chairman of several nomination committees of listed companies. RESPONSIBLE INVESTMENT & GOVERNANCE 21
An ongoing process2002 2007 2008 2009 2010 Initiates EstablishNordea launches first Signs UNPRI Initiate Initiates engagements in Signs Carbon Exclude New Strategy in-house and launch policy Disclosure and Policy engagementethical funds on Responsible enga- new companies Project com- in new ESG method Investment gement panies companies activi- involved ties in clusterNordea has been munitions Becomes partner toworking with governance CDPissues since the 1980´s
Published by: Nordea Investment FundsPhotos: Håkan Flank, iStockphoto, Getty ImagesGraphic design: Lina Johansson, Sense Design & Madeleine Gröndahl, Mad DesignSources: Ethix SRI Advisors, Hermes Equity Ownership ServicesMars 2011
Nordea Responsible Investment & GovernanceAnnual Report l 2010