Different factors are taken into account when selecting and monitoring underlying investments. These factors are assessed by NN Investment Partners (NN IP) – the manager for the selected sub funds.
1. Exclusions as a result of actions or violations to standards
Most notably, when selecting underlying investments, companies and governments that severely or seriously violate internationally recognised standards set out in the United Nations Global Compact (among others) or human rights are excluded from the selection.
2. Exclusions as a result of business behavior
Companies (and even countries) that are involved in some of the following business operations below are also excluded from the selection:
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producing and/or selling controversial weapons,
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tobacco,
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gambling and "adult entertainment",
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fur and "special" leather,
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coal mining,
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3. ESG scoring
Companies are then classified using a scoring system developed by NN IP. This system is based on:
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the opinion of NN IP analysts about the risks and opportunities for a company and,
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the ESG ratings given to the company by Sustainalytics, a global leader in corporate governance and ESG research and ratings.
This ESG score will be taken into account when making the final selection of underlyings for the portfolio. In practice, a company with a high financial score will not be selected if its ESG score is lower than the sector's average.
4. Impact investments
Impact investments are also taken into consideration when selecting underlyings. These are investments that set out to achieve “measurable” social or environmental goals. A good example of this are green bonds. Issuers of green bonds invest this the proceeds into projects which, for example, demonstrably reduce carbon emissions.
Beyond these selection criteria, managers for the selected sub-funds ensure active monitoring and engage with the companies in which they invest. This is done via: voting or active shareholding and engagement
5. Voting or active shareholding
This engagement embraces the belief that companies that focus enough on good governance obtain the best long-term results. Therefore, good governance must be promoted among the companies in which the sub-fund manager is investing.
For example, companies in which the sub-fund is investing must be open about how the members of the management committee and the management processes ensure that sufficient attention is given to issues such as climate risks and compliance with social standards.
In order to promote good governance in the companies in which it is investing, the manager actively uses the voting rights attached to the shares. It is currently focusing on three important areas: 1) sustainability, 2) the board's effectiveness, and 3) aligning directors' pay with the company's strategy.
6. Engagement
In addition to playing a role via the voting policy, the manager also engages with the companies in which it is investing in other ways. Proactive conversations are taking place with company directors in order to discuss ESG rules and promote them further if necessary.
In addition to financial criteria, how sustainable investment candidates are and the efforts that they are making to become more sustainable therefore play a crucial role in building the portfolio.
More information about the methodology used for sustainable investments