At Simplicity, responsible investments and sustainability are an important part of our asset management
Simplicity’s vision is to be a responsible investor that, through investments in sustainable and well-managed companies, contributes to long-term and high risk-adjusted returns for our clients. An important part of this is that the companies and issuers in which the company invests conduct their operations in a responsible and sustainable manner. The company’s work with responsible investments takes place within fund management, discretionary portfolio management and investment advisory services.
The company has established governing documents and processes for its work with responsible investments. These include, among other things, the integration of sustainability risks, consideration of principal adverse impacts on sustainability factors, assessment of good governance practices, and shareholder engagement.
How sustainability-related factors are integrated into investment decisions and advisory services may differ between different funds, discretionary mandates and advisory mandates. Information on how sustainability issues are considered in each fund or investment product, as well as any sustainability objectives, methods, criteria and limitations, is set out in the product-specific documentation. Discretionary portfolio management and investment advisory services are tailored to the client’s sustainability preferences.
Measures to manage sustainability risks
A sustainability risk means an environmental, social or governance event or condition that, if it occurs, could cause an actual or potential material negative impact on the value of the investment. The company shall take sustainability risks into account in all managed funds, discretionary mandates and through investment advisory services. Simplicity’s belief is that this contributes to sustainable and long-term value creation.
In discretionary portfolio management and investment advisory services, several material factors that may affect the financial performance of the investment are evaluated for each investment decision. The analysis therefore integrates environmental, social and governance-related factors in order to better manage sustainability-related risks and opportunities. The integration of sustainability risks in individual mandates is also guided by the choices made by the client within the framework of their sustainability preferences.
Within fund management, sustainability risks are integrated through norm-based screening, engagement, exclusion and inclusion.
Fund Management
Focus areas and objectives for responsible investments
The Fund Management Company’s approach to responsible investing is based on four focus areas, each supported by specific objectives. Together, these form the framework for identifying, integrating and managing sustainability risks within the investment process, while contributing to a sustainable transition through the investments made. The objectives are implemented through dedicated strategies and monitored using relevant indicators.
Environmental and Climate
“Simplicity aims to ensure that its investment management activities are, over time, aligned with the objectives of the Paris Agreement to limit global warming to 1.5°C and contribute to the transition towards net-zero emissions.”
Social Responsibility
“Simplicity aims to ensure that its investment management activities are characterised by investments in socially responsible businesses and limited exposure to activities that give rise to adverse social or societal impacts.”
Responsible Business Conduct
“Simplicity aims to ensure that its investment management activities are characterised by investments in well-managed companies that conduct their operations in accordance with internationally recognised norms and conventions for responsible business conduct.”
Active and Responsible Ownership
“Simplicity aims to ensure that its investment management activities are characterised by active and responsible ownership practices that contribute to improvements in companies where environmental, social and/or governance-related risks have been identified.”
Below is a description of how sustainability risks are integrated into fund management.
Norm-based screening
Investments in companies that do not conduct their business in a responsible manner constitute a sustainability risk. Norm-based screening is used to identify any violations of international standards and conventions, such as ILO conventions, the UN Global Compact, the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights (UNGP). The screening is also used to identify other types of environmental, social and governance-related incidents. All funds are screened regularly.
If it is established that a company in which any of the company’s funds have invested has been involved in an incident or violation, measures shall be taken. The measures may include initiating an engagement dialogue with the aim of obtaining the company’s view of what occurred, the measures that have been taken and any further measures that are planned. The dialogue and other information gathered form the basis for assessing whether the company remains investable or whether the holding should be divested.
The company’s funds shall not invest in companies that systematically violate international standards and conventions.
We engage (engagement)
In order to influence and encourage companies to act more sustainably, engagement dialogues may be used. Engagement dialogues can be divided into two categories: reactive and proactive.
Reactive engagement dialogues are initiated when a portfolio company is involved in an incident, is suspected of having violated international standards and conventions, or when other material sustainability-related issues are identified. The purpose is to understand what occurred, follow up on measures taken and assess the company’s willingness and ability to manage the situation.
The company’s portfolio managers may also initiate proactive engagement dialogues. This may be done individually or together with other investors, depending on what is considered most appropriate in the individual case. When prioritising engagement dialogues, consideration is given, among other things, to the likelihood of achieving positive change and the presence of elevated sustainability risks. The objective of a proactive dialogue is to encourage companies to take measures in areas where environmental, social or governance-related risks or opportunities for improvement have been identified. Such dialogues may, among other things, address issues relating to environmental and climate matters, social responsibility or responsible business conduct, and aim to encourage companies to adopt science-based climate targets, become signatories to the UN Global Compact, or take other relevant measures.
We exclude (exclusion)
Exclusion forms part of the company’s work to manage sustainability risks and covers a number of sectors, businesses, products, services and activities where the sustainability risks are considered to be so extensive that investments shall be excluded. Exclusion may also be based on international standards and conventions.
The exclusion criteria applied and the applicable thresholds may differ between different funds. Information on each fund’s exclusion criteria and thresholds is set out in the product-specific documentation.
We include (inclusion)
To promote sustainable development, the funds may invest in companies, issuers and securities that are considered to contribute to environmental or social objectives or that exhibit specific sustainability-related characteristics.
Several of the company’s funds make sustainable investments in accordance with Article 2(17) of the Disclosure Regulation. Under the Disclosure Regulation, a sustainable investment is defined as an investment in an economic activity that contributes to an environmental or social objective, provided that the investment does not significantly harm any of these objectives and that the investee companies follow good governance practices.
Information on the applicable criteria, thresholds and methodology for identifying and monitoring sustainable investments for each fund is set out in the product-specific documentation.
Sustainability committee
The company has a sustainability committee that meets regularly to discuss sustainability-related issues within the fund business. The sustainability committee consists of the Head of Sustainability, all fund managers, investment advisory representatives, the CEO and the company’s risk manager.
The committee addresses, among other things, issues relating to sustainability risks, violations of international standards and conventions, incidents, exclusion criteria and engagement dialogues. The sustainability committee contributes to knowledge sharing, joint positions and a consistent application of the company’s work with responsible investments.
Initiatives and networks
UNPRI
Simplicity has signed the UNPRI, the UN-supported Principles for Responsible Investment. UNPRI works to increase understanding of responsible and sustainable investments. The work is based on six non-binding principles that summarise what is expected of the signatory companies.
PRI’s six Principles for Responsible Investment:
- We will incorporate ESG issues into investment analysis and decision-making processes.
- We will be active owners and incorporate ESG issues into our ownership policies and practices.
- We will seek appropriate disclosure on ESG issues by the entities in which we invest.
- We will promote acceptance and implementation of the Principles within the investment industry.
- We will work together to enhance our effectiveness in implementing the Principles.
- We will each report on our activities and progress towards implementing the Principles.
More information about UNPRI and their work can be found on their website: www.unpri.org.
SWESIF
Simplicity is also a member of SWESIF (Sweden’s Sustainable Investment Forum) and participates in its Sustainability Profile. SWESIF is an independent network forum for organisations working with sustainable investments in Sweden. In the Sustainability Profile, fund management companies state which sustainability criteria are included in the management of a fund, making it easier for investors to compare funds. The decision to join SWESIF is based on our continued work towards greater integration of sustainability and responsibility in the investment process.
21-Point Initiative
Simplicity participates in the 21-Point Initiative, which requires Nordic high-yield companies to respond to a series of sustainability-related questions.
Code of conduct for responsible entrepreneurship and international standards
Simplicity shall act as a responsible company. The company has, among other things, adopted ethical guidelines that regulate how ethical issues are to be handled within the business.
Simplicity has joined the UN Global Compact and shall adhere to the initiative’s ten principles in the areas of human rights, labour, the environment and anti-corruption. The principles constitute an important framework of reference in the company’s work with responsible investments and are taken into account, among other things, in the work with norm-based screening, assessment of sustainability risks, engagement dialogues and monitoring of portfolio companies.
Simplicity also works to contribute, through its investments and operations, to the transition towards a more sustainable economy and to the achievement of the goals of the Paris Agreement.
Sustainability in discretionary mandates
The company offers discretionary portfolio management, where investment decisions are made on behalf of the client within the framework of an agreed management mandate. The management is tailored based on the client’s investment objectives, investment horizon, risk profile, financial situation and sustainability preferences.
The integration of sustainability risks and consideration of sustainability-related factors form part of the investment process within discretionary portfolio management. How sustainability issues are considered and which sustainability-related requirements are applied may vary between different mandates depending on the client’s sustainability preferences and the structure of the management assignment.
Below is sustainability-related information for two model portfolios.
Discretionary Portfolio Management – Mixed Mandate
Discretionary Portfolio Management – Equity Mandate
Identification, Assessment and Management of Principal Adverse Impacts on Sustainability Factors
Identification of principal adverse impacts on sustainability factors
Investments in funds expose unitholders to the underlying assets and thereby to the companies and activities in which the funds invest. Any adverse impacts on sustainability factors are therefore linked to the activities of the underlying companies. A central part of the work to integrate sustainability risks is to identify and assess the adverse impacts on sustainability factors that an investment may entail. The analysis is based on both industry-specific conditions and circumstances relating to the individual company. In the assessment, consideration is given, among other things, to the significance of the identified risks for the business, the likelihood of their occurrence and their potential consequences. Sustainability risks may vary between different funds, investment strategies and asset classes.
Statement on principal adverse impacts of fund management on sustainability factors
Statement on principal adverse impacts of investment advice on sustainability factors
In investment advisory services, how adverse impacts on sustainable development are to be considered in investment decisions is regulated in the engagement agreement, which is based on obtaining the client’s sustainability preferences.
Principal adverse impacts on sustainability factors concern how a company’s activities have a negative impact on the surrounding environment, including the environment, working conditions and social conditions. For example, the activities may result in carbon dioxide emissions, affect biodiversity or violate the OECD Guidelines for Multinational Enterprises. If you wish to avoid such adverse impacts on sustainability factors, you can therefore choose to have your financial adviser take such impacts into account when providing investment advice.
It is currently not mandatory for all financial advisers and producers of savings products to provide information on principal adverse impacts and how these have been addressed for all savings products, so this information may not be available on the market.
Within the framework of our discretionary portfolio management and investment advisory services, we can take principal adverse impacts on sustainability factors into account by excluding companies that operate within the fossil fuel sector and/or companies that have exposure to controversial weapons. As data availability and the EU’s sustainability regulations develop, our list of selectable principal adverse impacts on sustainability factors (PAI) to be considered will be expanded.