Summary
No principal adverse impact to a sustainable investment objective
Sustainable investment objective of the financial product
Investment strategy
Share of investments
Monitoring of sustainable investment objectives
Methods
Data sources and data processing
Limitations of the methodology and data
Due diligence
Shareholder engagement policy
Achieving a sustainable investment objective
Summary
The Fund's goal is to make sustainable investments. The Fund's assets are invested in companies that have a positive impact on the environment and/or society. The positive impact sought by the Fund is defined according to activities in line with the UN Sustainable Development Goals or the EU Taxonomy, among others. The Fund achieves its sustainability target by investing in companies whose activities partly concern products or services that promote the UN Sustainable Development Goals, and/or whose activities are aligned with the goals of the EU Taxonomy. The Fund may also invest in thematic bonds (green, social or sustainability bonds). Funds in green bonds are used to promote sustainability targets related to the environment, funds in social bonds are used to promote sustainability targets related to society, and funds in sustainability funds must be used to promote sustainability targets related to both the environment and society.
Those investment options whose business promotes one or more UN Sustainable Development Goals (SDG) without harming other sustainable factors or goals are considered sustainable investments. Sustainable investments are determined using OP Asset Management’s analysis model based on SDG and EU Taxonomy alignment data and green revenues data by external service providers, among other sources. The sustainable investment model can be supplemented with manual analysis performed by the portfolio manager. In the case of this Fund, manual sustainability analysis is part of fundamental analysis of the investment and can be used to adjust the results of automated sustainability analysis, to identify the positive environmental contribution of thematic bonds, and/or to achieve societal sustainability goals.
Principal adverse impacts (PAI) on sustainability are regularly analysed by screening all investments for their PAI indicators. If the screening reveals investee companies with significant principal adverse impacts on sustainability in comparison to peers and if the said PAI indicator is deemed essential for the investee company, the investee company will be monitored more closely and excluded, if necessary. Also, a process to influence the company’s behaviour can be started.
OP Asset Management uses several data sources from different service providers. Primary data sources are MSCI ESG Research and S&P Trucost, which provide information on topics such as the sustainability risks of investee companies, share of business operations with adverse impacts, climate risks and opportunities, and how the operations of investee companies align with UN Sustainable Development Goals. The service providers use both data reported by companies and estimates based on an assessment model developed by each service provider.
No principal adverse impact to a sustainable investment objective
The OP Asset Management’s sustainable investment analysis model is used to check whether a company has violated international standards (UN Global Compact and OECD guidelines for multinationals). If a violation is identified, the company cannot be determined as a sustainable investment. The definition of international standard violations and company-specific analysis is based on the methodology of a third-party service provider.
In addition, principal adverse impacts (PAI) are analysed regularly by screening investments against all PAI indicators listed in Annex 1, Table 1 of the SFDR RTS, as well as additional indicator #4 of Table 2 and additional indicator #14 of Table 3 using OP Asset Management's internal PAI tool based on data from an external service provider. If the screening reveals companies with significant principal adverse impacts on sustainability in comparison to peers, and if the said PAI indicator is deemed essential for the investee company, the investee company will be monitored more closely and excluded if necessary, or a process to influence the company's behaviour can be started. Portfolio managers use the PAI tool to determine the values of the company and line of business, and this data is used when making investment decisions.
More information about how we take adverse sustainability impacts into account can be found in the document ""Consideration of Principal Adverse Sustainability Impacts in Investing and Insurance Operations (in Finnish)"", which is available online at op.fi.
Sustainable investment objective of the financial product
OP-Sustainable Corporate Bond is a long-term bond fund which mainly invests its assets in euro-denominated bonds issued by companies with a high credit rating that are located in OECD countries. Most of the Fund's assets are invested in securities of issuers whose long-term creditworthiness has been rated as at least BBB- or comparable.
Sustainable investments: the Fund’s assets are invested in bonds issued by companies with a positive environmental impact and/or to achieve societal sustainability goals. The Fund can also invest assets in thematic bonds issued in order to achieve environmental or societal sustainability goals. For example, the Fund invests in companies whose activities concern products or services that promote the UN Sustainable Development Goals, and/or whose activities are aligned with the goals of the EU Taxonomy.
Those investment options whose business promotes one or more UN Sustainable Development Goals (SDG) without harming other sustainable factors or goals are considered sustainable investments. Sustainable investments are determined using OP Asset Management’s analysis model based on SDG and EU Taxonomy alignment data and green revenues data by external service providers, among other sources. The sustainable investment model can be supplemented with manual analysis performed by the portfolio manager. In the case of this Fund, manual sustainability analysis is part of fundamental analysis of the investment and can be used to adjust the results of automated sustainability analysis, to identify the positive environmental contribution of thematic bonds, and/or to achieve societal sustainability goals.
Investment strategy
OP-Sustainable Corporate Bond is a long-term bond fund which mainly invests its assets in euro-denominated bonds issued by companies with a high credit rating that are located in OECD countries. Most of the Fund's assets are invested in securities of issuers whose long-term creditworthiness has been rated as at least BBB- or comparable.
Sustainable investments: the Fund’s assets are invested in bonds issued by companies with a positive environmental impact and/or to achieve societal sustainability goals. The Fund can also invest assets in thematic bonds issued in order to achieve environmental or societal sustainability goals. For example, the Fund invests in companies whose activities concern products or services that promote the UN Sustainable Development Goals, and/or whose activities are aligned with the goals of the EU Taxonomy.
Investee companies are screened using OP Asset Management’s analysis model, which is based on an external service provider’s SDG and sustainability data. Companies whose business promotes one or more UN Sustainable Development Goals (SDG) without harming other sustainable factors or goals are considered sustainable investments.
Exclusion: The Fund excludes from its active direct investments controversial weapon manufacturers, mining companies producing thermal coal, power companies using thermal coal, tobacco companies, and companies that have breached international standards, and where engagement has been unsuccessful. The list of exclusions is public. In addition to general exclusion rules, the Fund does not invest in companies whose principal business is in unconventional oil and gas extraction or other fossil fuels (50% of revenue or more).
Violations of international standards: The Fund is screened regularly for non-compliances with international standards. In the event that a non-compliance is detected, an influencing process is begun with the company in question. The aim is to make non-compliant companies change their practices and begin to comply with international standards in their operations. If influencing proves fruitless, the company may be removed from the Fund portfolio and placed on the exclusion list.
Methods for assessing good governance practices: Analysing the target company’s governance is an important part of the investment process. For us, good governance is a key foundation for any company’s financial success, regardless of sector. When assessing governance, some of the areas considered include the appropriateness of the target company’s administrative organisation, the target company’s actions in relation to its personnel, and the target company’s rewarding and taxation practices. In assessing good governance, we use an external service provider’s analysis and our own qualitative analysis if no external data is available. We screen the funds regularly using good governance criteria with minimum thresholds.
Share of investments
The fund engages exclusively in sustainable investments. If necessary, the fund may also invest its assets in exchange traded derivatives and OTC derivative contracts in order to hedge against the risk of adverse market movements, to replace direct investments and to otherwise promote effective portfolio management. However, the share of sustainable investments is always at least 75%.
Monitoring of sustainable investment objectives
Portfolio managers have access to the fund’s ESG analysis, which indicates, among other things, the weighted ESG rating, carbon intensity and share of green business of the portfolio. In addition, the portfolio manager regularly monitors the share of sustainable investments in the Fund.
Investments are regularly screened by ESG specialists for principal adverse impacts (PAI), exclusion criteria and international standard violations.
Fund-specific ESG indicators on top-level environmental and social characteristics related to the Fund are reported on a monthly basis.
Methods
The internal model developed by OP Asset Management for defining sustainable investments also provides relevant company-specific ESG data and gives an estimate of the company’s sustainability. Those investment options whose business promotes one or more UN Sustainable Development Goals (SDG) without harming other sustainable factors or goals are considered sustainable investments. The Fund’s proportion of sustainable investments is reported annually in periodic reports, in addition to which portfolio management has access to data updated on a monthly basis on the share of sustainable investments of the Fund’s portfolio.
External ESG data can be used to examine the investee company’s targets for GHG emission reductions or current state in terms of the green transition.
Negative screening is used to limit and exclude certain sectors and operations from the Fund’s investments. The Fund excludes from its active direct investments controversial weapon manufacturers, mining companies producing thermal coal, power companies using thermal coal, tobacco companies, and companies that have breached international standards and where engagement has been unsuccessful. The list of exclusions is public. In addition to general exclusion rules, the Fund does not invest in companies whose principal business is in unconventional oil and gas extraction or other fossil fuels (50% of revenue or more). In addition to ESG tools applied to the investee companies, portfolio managers have access to fund-specific reports on ESG issues at the portfolio level.
The Fund’s investments are also screened regularly for violations of international standards using an external service provider’s analysis. If a standard violation is detected, the preferred option is to influence the company’s behaviour. If that is impossible or unsuccessful, the company may be removed from the Fund portfolio and placed on the list of exclusions. Identified standard violations and their related engagement processes are reported twice a year in connection with shareholder engagement reporting. In addition to ESG tools applied to the investee companies, portfolio managers have access to fund-specific reports on ESG issues at the portfolio level. The reports allow portfolio managers to view the Fund’s weighted ESG rating, carbon intensity and share of green business, among other data. These values are also presented in comparison to benchmark indexes.
Data sources and data processing
OP Asset Management uses several data sources from different service providers. Primary data sources are MSCI ESG Research and S&P Trucost, which provide information on topics such as the sustainability risks of investee companies, share of business operations with adverse impacts, climate risks and opportunities, and how the operations of investee companies align with UN Sustainable Development Goals. The service providers use both data reported by companies and estimates based on an assessment model developed by each service provider.
The service providers we use have detailed and appropriate processes in place for ensuring data quality and correcting inaccuracies in the data.
When selecting new data packages and service providers, we carefully compare and analyse the data quality, coverage, methodology and reliability of each service provider. We regularly monitor trends in ESG data and service providers on the market to ensure the best possible data to support our investment decisions and client reporting.
Data sources are utilised either directly based on metrics or analysis by the service provider as well as by combining different metrics and using them for internal analyses and assessments by OP Asset Management. A part of the data is imported directly to OP Asset Management’s database, from which it can be used in internal analysis models and reports. Data is also used directly from interfaces offered by the service providers.
The share of data that is assessed depends on sustainability indicators and the sustainability factor under scrutiny, and it is not possible to give a universal definition of the share of assessed data of all ESG data. It is difficult to determine what portion of ESG data are based on reported information and estimates, respectively. In cases where reported data is available, it is used as the primary source. Third-party service providers must specify for each metric whether the data is reported by companies themselves or estimated using the provider’s internal model.
Limitations of the methodology and data
At the moment, ESG data is not fully standardised, and investee companies do not report on the data widely. This makes it challenging to compare investee companies. Service providers may use different methods for compiling, evaluating and analysing data. For these reasons, we carefully review the methodologies of service providers to ensure their suitability for our purposes.
We use several different service providers to enable us to assess certain metrics from multiple sources and plug any gaps in data.
Due diligence
The Fund's sustainable investment model is automated, and the manual analysis process is limited in scope in writing and carried out by the portfolio manager in writing. Sustainable investments are screened and reported regularly. The Fund is also subject to exclusion criteria and screened for international standard violations as described above in part (d) Investment strategy. A party independent of portfolio management oversees that the Fund complies with the criteria. The Fund’s material exclusion criteria are implemented in the trading system.
Shareholder engagement policy
OP is an active shareholder through its funds by voting in Finnish and international shareholders’ meetings, engaging in direct dialogue with companies and supporting joint initiatives by investors. OP's funds comply with the principles of shareholder engagement that take into account OP Fund Management Company Ltd’s ESG perspectives. These principles and the latest report on the implementation of shareholder engagement principles are available at https://www.op.fi/responsible-investing. Participation in general meetings of foreign companies takes place in markets where participation is cost-effective, taking into account their proportion of the Fund’s investments.
By 2025, OP Asset Management’s climate-related shareholder engagement will cover 70% of financed emissions, as measured by direct equity and bond investments by OP funds in high climate risk sectors (NACE categories A-H and J-L).
In practice, shareholder engagement in these companies involves either voting at shareholders’ meetings, direct dialogue or joint initiatives by investors. In addition, the Fund is involved in shareholder engagement more broadly where necessary, such as in relation to good governance, responsible tax practice or business ethics.
Achieving a sustainable investment objective
All the Fund's underlying investments must be sustainable in accordance with the criteria set by OP Asset Management. The portfolio manager regularly monitors the sustainability criteria of the Fund's investments. All the Fund's investee companies must engage in activities that support sustainable wellbeing for people and societies, while accounting for the environmental impact of the investments’ business operations, such as climate goals. Sustainability indicators include the share of services and goods producing social wellbeing solutions as a proportion of the company's total revenue and/or the company's success as an employer in a given social issue.
In addition, the Fund is committed to the climate targets of OP Asset Management and even though these do not constitute the Fund's main investment goal, climate targets are binding on all funds managed by OP Asset Management.
Updated 21.10.2024