RI Interview: Storebrand’s Saugestad: “Throwing down the green gauntlet”

When Storebrand divested its latest round of coal companies last week, it didn’t mince its words. “This is a warning to all coal plant developers,” said Jan Erik Saugestad, CEO of Storebrand Asset Management – Storebrand’s €62bn investment arm, which runs money for the group’s other subsidiaries, as well as for external clients. “If you put steel in the ground, we’re out. To the power producers, clean up your energy sources or lose customers and investors”.

The 10 additions to its exclusion list – which include RWE and E.ON’s Uniper – bring the number of firms off limits to Storebrand on environmental grounds to around 70. It said it was “throwing down the gauntlet to the financial sector… to screen out more coal companies”.

And there’s no longer any excuse, says Saugestad: “Responsible investing has become an entire industry.”

Its coming-of-age has led to what Saugestad describes as “greater and greater efficiency” around sustainable finance, making it easier to be effective. “We used to have to read annual reports and make our own data. Everyone who wanted to look at sustainability had to do that, individually. Now, having specialist research houses that gather that raw data allows us to start using our own research capacity to work out how to use that data to make better investment decisions.”

Beyond coal, Storebrand’s basic exclusion list includes some 200 companies barred on sustainability grounds. For the firm’s more specialist ESG products, this number climbs to nearly 400.

In addition to exclusions, Saugestad says Storebrand focuses on investing in companies that integrate sustainability in their strategies and are “well-positioned for future trends“.

For this he’s especially grateful for the UN Sustainable Development Goals, which he describes as a “very useful framework” that can now be employed to identify challenges and solutions linked to sustainability.

Many investors have selected one, or a handful, of SDGs to focus on. Sweden’s AP7, for example, is leading a working group on water investments, while Alecta has turned its attention to decent working conditions. Storebrand has cast a wider net, covering all 17 goals, although Saugestad concedes that some are easier than others to address from an investor standpoint.

“It’s easier to do research and quantify impacts around certain SDGs – particularly those with more science-based metrics,” he says, pointing to the growing availability of carbon footprinting services for investment portfolios to help assess alignment with Goal 13 (Climate Action).

To support a wider allocation, Storebrand uses the Global Opportunity Explorer: a tool created by the UN Global Compact, Sustainia and DNV GL to identify solutions, innovations and investment opportunities that support the SDGs. Storebrand is also part of another Global Compact initiative – this time in collaboration with the Global Reporting Initiative (GRI) – to push companies for better disclosure on the SDGs.There is rethinking on the product side, too. Storebrand’s Global Solutions Fund, for example, invests in what it claims are the 100 best companies from a sustainability point of view. “But we’re now trying to move that portfolio more clearly in the direction of the SDGs – both in terms of the holdings and how we report on its impacts” explains Saugestad, adding that this means an increasing focus on firms with solutions to sustainability challenges, as well as sustainable business practices.

In addition, Storebrand will extend its family of ‘Pluss’ equity funds in the new year, citing investor demand. The family of fossil-free, sustainability-focused passive equity funds comes in a global, Nordic and emerging markets versions, currently. It has attracted more than €1bn since launch last year, and is now being rolled out to cover Europe.

On the fixed-income side, Storebrand has a leading position in the green bond space. In a small market increasingly saturated with asset managers, Storebrand has managed to, relatively quietly, retain the crown for running the largest green bond fund in the world.

But, despite the $410m vehicle keeping hold of its number one spot – fending off recent entrants such as Blackrock and BNP Paribas – Saugestad believes the asset management community needs to broaden its thinking on sustainability in fixed-income markets.

“We need more solutions for fixed-income investors than just green bonds,” he says. “Because the investment universe for green bonds is just not big enough to absorb the kind of capital we have to deal with on the debt side. It might turn out that green bonds are a nice, viable niche – but they will remain a niche. More sustainable fixed-income products, with a broader investment universe, need to take the main stage if we’re going to build scale in the bond markets.”

This thinking has led Storebrand to come up with a new concept to give investors access to a wider universe of “green” bonds. “We are considering coming to market with a low-carbon global credit solution – a bond fund that can invest more broadly than our green bond fund, but with a much lower carbon footprint than a conventional equivalent. That’s the direction the market needs to move in if we’re to bring this to scale.”

In another bid to achieve scale, Storebrand last month bought fellow Nordic responsible funds house SKAGEN in a transaction initially valued at NOK1.6bn (€170m). SKAGEN has €8.5bn under management and claims to “actively integrate environmental, social and corporate governance issues into the investment process” across the board. “With more capital under active management we can strengthen our engagement and contribute to more change in companies,” says Saugestad.