Guidelines for sustainable investments
The purpose of KBN’s Guidelines for Sustainable Investments is to ensure that the management of the liquidity portfolio is aligned with KBN’s overall goal of contributing to a sustainable development of society and sustainable long-term value creation.
Integrating environmental, social, and corporate governance (ESG) factors into the investment decisions and investing in issuers acknowledging their responsibility towards sustainability is believed to generate higher risk-adjusted return in the long-run and be in the best interest of our communities, society, and the environment.
The Sustainable Investment Guideline applies to all existing and potential new entities in the KBN investment universe and should be seen as an integral part of the liquidity management.
ESG rating distribution
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| Portfolio statistics | 30-04-24 | 31-05-24 |
| Value-weighted ESG Rating coverage | 89% | 88% |
| Weighted average ESG Rating | C+ | C+ |
| Exposure Yellow (billion NOK) and share of the portfolio | 7.41 (5.4%) | 7.05 (5.5%) |
| Exposure Red (billion NOK) and share of the portfolio | 0 (0%) | 0 (0%) |
Sustainability dimensions
All entities, new and existing, will be assessed on three sustainability dimensions whenever sufficient data exists:
- Exclusion Criteria
- Norms-based research (NBR)
- ESG Rating
Exclusion Criteria
The exclusion criteria define which types of entities KBN will refrain from investing in or engage with, directly or indirectly. Any such entity operates in markets and/or conduct activities that KBN perceives to be unethical, harmful for the environment and/or society or is in breach with laws or regulations.
An entity is considered ineligible for investment and/or used for any other purposes if any of the following is the case:
Addictive substances
Gambling
Pornography
Controversial weapons
Norms Based Research
Norm based research (NBR) is continuous monitoring of entities to identify controversies and allegations of breach to established international sanctions, principles, and normative framework covering human rights, labor rights, environment- and business malpractice.
The core normative frameworks are:
- Principles of the UN Global Compact
- OECD guidelines for Multinational Enterprises
- UN Guiding Principles for Business and Human Rights / Sustainable Development Goals
ESG Rating
The ESG rating reflects an entity's sustainability profile, measuring its exposure to long-term environmental (E), social (S) and governance risks (G). The score reflects industry- and company specific factors that may have a negative or positive impact on a entity’s long-term risk and how well these risks are managed.
ESG strategy – active ownership
KBN aim to invest in entities that makes the best effort to meet their responsibilities towards the E, S, and G. KBN Sustainable Investment Guidelines however also accept a lower ESG rating if there are credible indications that the entity will make the necessary adjustments to improve the ESG performance. In the case of lower ESG rating KBN will, through direct dialogue with the entity, try to encourage improved ESG performance. If the score is not improve over time then KBN will need to act in accordance with Sustainable Investment Action Plan (see section below).
ESG data provider and monitoring
Sustainability research, data, screening services and ESG rating are provided by the sustainability rating agency Institutional Shareholder Services (ISS). If additional information is needed in the assessment of an issuer other sources of information can be used as KBN see fit.
Entities are continuously monitored to account for corporate actions, controversies, accidents, and other relevant events occurring affecting the ESG performance. KBN will receive alerts from the external data provider whenever there is a change to any of the Sustainability Dimensions and KBN will act in accordance to the KBN Traffic Light Score System and Sustainable Investment Action Plan.
KBN Traffic Light Score System and Sustainable Investment Action Plan
Entities will be granted an overall sustainability assessment score according to KBN Traffic Light Score System.
| KBN Assessment | Red | Yellow | Green |
| KBN Actions | Exclusion | Watchlist | No action needed |
The overall sustainability assessment score is determined by its lowest individual dimension score.
| Dimensions | Possible scores |
| 1) Exclusion Criteria | Green or red |
| 2) NBR | Green, Yellow, Red |
| ESG Rating | Green, Yellow, Red |
| Overall Sustainability assessment score | Green, Yellow, Red |
Sustainable Investment Action Plan
KBN will act in accordance with the Sustainable Action Plan depending on the overall sustainability assessment score.
| Overall Sustainability Assessment Score | Action plan |
| Green |
Engagement with entity may continue/potential new entity can be approved. |
| Yellow |
KBN will assess whether to keep the entity as Yellow or to suggest a downgrade to red. In this assessment information from other relevant sources in addition to the analysis from the external data provider may be utilised. Entities that are not subject to a downgrade to Red are placed on the Watchlist. A plan for action(s) shall be suggested. Possible actions may vary from passive observation of new information from the external data provider to actively engaging in bilateral dialogue with the entity. If a potential new entity is given a Yellow score, the entity can be approved as long as actions are carried out in accordance with the action plan. KBN will ensure that entities on the Watchlist are reviewed/re-assessed between 1 and 2 years after the previous assessment. The entity cannot remain on the Watchlist for longer than the initial 1-2 years period if the analyst cannot find any evidence from either the external data provider or by its own investigations of actual improvement/likely improvement to come in near future. |
| Red |
The entity will immediately be removed from the KBN Investment Universe when alerts are received resulting in an Overall Sustainability assessment score of Red. A potential new entity cannot be approved if the Overall Sustainability assessment score is Red. KBN will assess the exposure and decide on hard exclusion vs a soft exclusion.
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Repurchase Agreements
Requirements regarding issuers of securities received in reverse repo agreements.
Sovereign/sub-sovereign: KBN can only receive sovereign/sub-sovereign with OECD memberships as collateral.
Other entities: Green or Yellow Overall Sustainability Assessment Score.
The OECD membership requirement sets a minimum standard for environmental, social, governance and economic/financial aspects for issuers in the KBN Investment Universe as OECD supports the UN Sustainable Development Goals and the success of the 2030 Agenda for Sustainable Development.
Review of Sustainable Investment Guideline
KBN is required to conduct an annual review of the contents of this guideline. More frequent reviews may occur when required.
Exceptions and proxies
Sustainability data on sovereign level will be used as a proxy for sub-sovereigns that are not covered by the external data provider.
Sustainability data on parent entity level / group level will be used as a proxy when this data exists if the legal entity in question is not covered explicitly by the sustainability data provider.
KBN is not required to perform any form of independent sustainability assessment for entities or any of the proxies where the external data provider does not provide sustainability data.
NBR is only relevant for entities that are not sovereign- or sub-sovereign.