Interview with Willem Schramade, Fund manager at NN Investment Partners
Jan 30, 2018
Climate Action caught up with Willem Schramade, Fund manager at NN Investment Partners about their approach to SRI and conviction in sustainable finance.
“Our duty is to engage a direct and regular dialogue with the selected companies.”
When did NN Investment Partners start with SRI strategies, and how does the company approach sustainability?
NN IP has been managing sustainable Equity funds since 1999. The range was then expanded in 2005 with the European Equity strategy (NN European Sustainable Equity), then with Credit funds including in 2016 a Green Bond fund, a Multi-Asset fund, and finally the launch of our impact investing fund in 2016, NN Global Equity Impact Opportunities.
In total, our SRI assets under management are around 10 billion euro*.
Today, we continue to grow our SRI footprint through the reinforcement of our RI dedicated team (composed of 3 senior specialists) in a direct reporting line to NN IP’s CIO, and through the strengthening of ESG integration by all investment teams in a congruent and coherent way. We have an ambitious roadmap in putting NN IP’s principles into practice, particularly the Momentum and Materiality angles.
This ambition is executed on via both engagement actions increasingly relayed by all our teams (analysts and fund managers) with investee companies and in collaborative actions as well as via a customized voting policy.
The evolution of our SRI range has been accompanied by regular participation to market actions in line with the values of our group, “Care, Clear, Commit”: such as signing the PRI in 2008 and UNPSI in 2012, and becoming a member of the Climate Bond Initiative in 2016. NN Group is also active in the field of corporate citizenship, with actions such as "NN Future Matters", which refer to the UN's sustainable development objectives.
This year you are sponsoring the Sustainable Investment Forum Europe. Why did you decide to get involved?
To NN IP, ESG integration is more than ’just’ making sure ESG factors are embedded in the investment process. It’s a beginning. ESG factors assist us in understanding risks and opportunities and help us make better informed decisions and guide discussions with companies and issuers. For this reason we also participate in conferences and seek interaction and collaboration to drive ESG integration forward. To make the impact that we desire we need to be involved in market initiatives.
NN IP has extended its funds’ range with "impact" strategies. What is your definition of Impact Investing?
The launch of "impact" funds is part of the natural evolution of our range. The two impact funds, launched in 2016, invest in Green Bonds and Global Equities, respectively. In addition to a strict ESG filter on the companies’ operational behavior, these funds bring, an additional dimension: the ESG materiality of their business model, namely the positive societal impact they generate. That is the first screening criterion.
These funds also answer to a growing demand from end-investors: which is to give a meaning to their investments and to contribute, through the capital invested, to a positive societal impact, without giving up a financial return.
Our role as "impact manager" is expressed at two levels: analysis and valuation of the business models’ impact, and an active dialogue with selected companies. This dialogue focuses both on improving published ESG data and sharing best practices.
Is it easy to find investment opportunities?
Yes! The global investment universe is broad, with interesting companies in Europe, but also in emerging countries and in the USA.
For example, there are hundreds of companies that improve the quality and access to healthcare. Many others reduce the carbon footprint of transport and industry. And there are niches with a smaller but still sizable number of companies, such as education or microfinance.
How do you measure impact?
We assess the impact of business models through 3 main criteria, "M. I. T.": Materiality, Intentionality and Transformationality :
Materiality of the environmental or societal impact of the products and services sold, and their weight in the company's overall turnover.
Intentionality expressed in the strategy and vision of the executives.
Transformationality linked to the innovative nature of products/services and R&D investments.
To ensure a fulfilling diversification of our portfolio, we have chosen three main themes, "P. P. P.". “People, Planet, Prosperity”. These themes also enable us to meet most of the 17 SDGs (Sustainable Development Goals) defined by the United Nations in 2015.
For instance, the companies within our portfolio allow access, for the greatest number of people, to health care systems and food security ("People"), reduce the impact on the "Planet" (circular economy, reduce waste of water & energy consumption), and improve living conditions through access to information, education and microfinance ("Prosperity"). Each of these types of impact requires a different type of measurement, and we tailor our measurement to the situation of the company at hand. For example, for a solar company or windmill maker, we measure the amount of emissions they help their clients to avoid. It is harder for “prosperity” companies, where we try to measure how many people are helped and by how much.
Impact investing in listed equity is a challenging field. Data are often not available as companies have only just begun to report on impact. Therefore, engagement is essential. It allows us to obtain relevant data from the companies and to get a better sense of their ability to have an impact.
You have a very proactive approach to the companies held in your fund NN (L) Global Equity Impact Opportunities ...
Indeed, because our fiduciary duty as a fund manager is not only limited to an active voting policy at AGMs. It also involves engaging in a direct and regular dialogue with companies, to enable a more targeted consideration of ESG issues, both in terms of reporting (1st stage) and defining their strategic priorities (ultimate stage). We believe in the positive impact of such an approach. This engagement takes time, which is why we have a concentrated portfolio with around forty stocks. By necessity, reporting remains a subject under construction, in which the qualitative dimension is essential.
How do you evaluate the impact of engagement?
When evaluating our engagements, we look at the progress on the goals we set and the milestones in our own process. More qualitatively, we consider the quality of the dialogue with the companies. This includes an assessment of their openness and responsiveness; the acknowledgment of issues; appetite for change; the number and nature of topics discussed; depth of the discussion; credibility of the examples and anecdotes they give; and meaningful data given.
For most of our engagements, the quality of dialogue is strong. But in a few cases, the quality of the dialogue was so disappointing that we decided to exit our position. In one case, we felt the company was much too rigid to achieve transformational change. For another company the opposite applied as it displayed so little structure that we felt it wasn’t in control of its operations.
Within our impact investing strategy, we did over 80 engagement meetings and calls in 2017, as well as dozens of mail contacts with companies.
How does this benefit the companies?
We observe that companies that are firmly committed to seeking positive impact really benefit from it.
Indeed, companies’ feedback on our approach has been very positive so far. They appreciate feedback on their sustainability efforts as they tend to get very few investor questions on it. The feedback mails we send them allow them to show that investors are interested in these topics and raise internal awareness. They also like our sharing of best practices on impact and sustainability reporting, and ask us about ways to meet likeminded investors and about dealing with sustainability ratings agencies. So, with our engagement, we also make an impact on our investee companies.
*Figures as at end of December 2017
Willem Schramade will be a panellist in the "Translating the Sustainable Development Goals into investment opportunities" panel during the Sustainable Investment Forum Europe, taking place on the 13th of March in Paris. To learn more about the event and how to register click here.