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Investment VIEW

Transparency on the rise again



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Valentijn van Nieuwenhuijzen - NN Investment Partners

As investors, we are constantly expanding our horizons and exploring new methods in our search for returns and alpha. We not only combine an active investment view with the use of specific data sources or insights from (academic) collaborations; we also assess the way we communicate these achievements to the market and our clients.

In doing so, we look ahead and we review past developments.

Around the turn of this century, and in the early days of responsible and sustainable investing, all attention was on transparency – providing insights and being accountable for the decisions taken in constructing sustainable portfolios. The European Sustainable Investment Forum (Eurosif) guidelines, for example, have become transparency guidelines. They enable clients to see which sustainable criteria are used to select investments. These transparency guidelines are still adhered to in the market.

Transparency ambitions later went on to include the disclosure of specific environmental parameters as well as portfolio constituents. For instance, CDP (formerly the Carbon Disclosure Project) transformed itself from an investor taskforce dedicated to disclosing carbon emissions to an action-oriented organization highlighting the need to manage climate impacts and to demonstrate this in portfolio management. This helped move the drive for disclosure to the establishment of Climetrics, the first climate rating for investment funds.

Multiple sustainability labels are now coming to the surface. In several countries, labels are now being promoted to increase transparency and improve the credibility of sustainable funds. These labels function as insurance against “greenwashing” of funds – i.e., claiming more sustainability in their name than they can actually demonstrate in their approach.

These labels need to be taken seriously. They often require a rigorous due diligence process before they can be used, and they help establish credibility regarding the fund manager’s underlying approach. Last year, the Luxembourg Stock Exchange launched the Green Exchange, a pan-European initiative where sustainable funds can be registered when they obtain the associated label. The only additional requirement is a yearly renewal of the approved label to safeguard transparency and continuity.

In an even more recent initiative, the Belgian banking association and the Belgian association of asset managers have endorsed a new quality standard for sustainable investment products. This standard was the result of public consultation and reflects expertise from market players as well as from other societal stakeholders.

So after 20 years, transparency on the contribution to transition toward a more sustainable future is still key. The emphasis, however, is shifting toward more accountability – not only for reporting on sustainability characteristics of portfolios, but also for an organization’s actions and for its investment approach to actively steer for change.

Demonstrating accountability is a step forward. It represents an active view of asset managers’ business operations and their investment beliefs and approaches. We believe this is an important building block for showing leadership in responsible investing.

NN IP is taking a step forward this year in demonstrating accountability by publishing its first dedicated annual report on responsible investment. The report provides further transparency and insights into our priorities as a responsible investor. It also describes the actions we believe are needed to lead the way on this journey – a journey where we actively set incentives to steer our economy toward a more sustainable future and harvest sustainable investment premiums to deliver attractive returns along the way.

 

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