ESG impact - a half year update
During the first half of 2017, SKAGEN continued to adhere to our long-standing commitment to incorporate Environment, Social and Corporate Governance (ESG) in our portfolios.
In Norway, we have had a particular focus on ensuring that the externally sourced funds in our SKAGEN Select series of multi-asset funds all follow our ESG Policy.
SKAGEN has since 2002 incorporated ESG in our investment process and proprietary research. As such, the portfolio managers make informed decisions by forming a more holistic understanding of the risks and opportunities related to individual investments. This allows them to better identify any challenges before they escalate into events that could potentially reduce the value of the funds ' investments.
At the beginning of the second quarter, SKAGEN launched a series of Select multi-asset funds in the Norwegian market. These products are fund-of-funds solutions that also include externally sourced funds, providing complementary access to other markets and exposure than we would get through solely including SKAGEN's own funds. In the process of selecting the external managers, SKAGEN made sure that the funds selected also adhere to our ESG policy.
"When selecting external managers it was a given that they would have to follow the same policy as SKAGEN's own funds," says Stein Svalestad, portfolio manager of the Select funds. "I feel this was valued by our external partners and we have had success in our dialogue with them."
In the dialogue with external managers for the Select funds, SKAGEN has either managed to find funds with a similar ESG policy to SKAGEN's, or funds that were willing to change to comply with SKAGEN's policy. In some cases, the external manager either changed their own policy or sold out of holdings that would be in breach of SKAGEN's policy.
In the first half of this year, we also concluded our 2016 report to the UN supported Principles for Responsible Investment. The assessment report that ensued showed that we compare well with other fund managers and are continuing to improve both in terms of processes and in integration.
When it comes to voting, 2017 has so far been an active year. In the first half year, we have voted on a total of 2174 items in 281 shareholder meetings, putting our voting percentage at 97 percent for the period. This is up from the 95 percent voted on in the first half of 2016.
In the meetings where we voted, 6.5 percent of the votes were against the company's management on one or more items on the agenda. This is up from 4.8 percent a year earlier. All these items are documented in our online solution from Institutional Shareholder Services (ISS), which is the world's leading provider of corporate governance solutions. Our unit holders can therefore find out how the funds have voted in the companies they own the day after the votes have been cast.
SKAGEN has, in accordance with our policy, typically voted against items related to the issuance of equity without preemptive rights for existing shareholders, excessive management remuneration without links to results and the election of board members who are not deemed sufficiently independent.
During the first half year, SKAGEN has also engaged with the companies in our portfolios. So far this year, SKAGEN has engaged with six companies on various issues of differing magnitude. These range from Dutch paint producer Akzo Nobel to commodities trading house Glencore. Our portfolio managers regularly speak with management in the companies where we are invested. We record the cases where we have had direct contact on a specific issue – regardless of how big or small the issue.
Last year, a decision was made by the Norwegian Government Pension Fund Global to exclude large coal-related producers and users. We have closely followed developments on this front. SKAGEN Global currently has a holding in CMS Energy, which is on the Norwegian Pension Fund Global's watch list. The lead portfolio manager of the fund has been in close dialogue with CMS Energy about the direction of the company, their use of coal in electricity production and the growth of alternative energy sources.
Since the previous update at the end of 2016, SKAGEN has completed and received another assessment report from the UN supported Principles for Responsible Investing (PRI).
The 2017 report shows that SKAGEN has retained its A rating on Strategy & Governance and Listed Equity – Incorporation. In addition, we have improved our score when it comes to Listed Equity – Active ownership and now have an A rating. Going forward we will focus on retaining our high standing and continue to improve our systems and processes.
During the summer, SKAGEN hosted the board of PRI and some of its Norwegian members at an event at the Kon-Tiki Museum in Oslo. The event was well attended.
Our ESG Policy has continued to prove valuable when it comes to managing ESG-related matters in the portfolios. SKAGEN believes that investing responsibly pays off in the long term because it helps us make better-informed investment decisions. All investments in all our funds are screened, evaluated and reviewed against our policy in terms of their sustainability.