Sydbank will make investments in a responsible and sustainable manner. Our decisions will be made on a solid and updated basis where we analyse ESG issues in terms of financial and business risks. We will be active owners in a constructive dialogue with the companies we invest in.
Target: 50-70% reduction in CO2e footprint from investments in 2030 compared to CO2e footprint in 2020.
Sydbank’s target to reduce the CO2e footprint from investments is about taking responsibility for society and for its customers. Sydbank takes responsibility for society by setting a target that complies with the requirements to limit temperature increases under the Paris Agreement. Sydbank takes responsibility for its customers by having a responsible approach to asset management and by paying special attention to how we address ESG risks in the overall investment process.
There is a risk that CO2e emissions may have an adverse impact on the value of our investments. Climate change driven by CO2e emissions may contribute to more extreme weather which could affect companies’ physical assets, eg production facilities. In addition companies with a high level of CO2e emissions risk becoming subject to a tax on these emissions or being outperformed by new and less emission-intensive technical solutions – and both outcomes would affect the earnings capacity of the individual company and therefore also the value of our investment. By having a target for the CO2e emissions of our investment portfolio we help to ensure the best possible risk-adjusted return for our customers.
At present CO2e data is most advanced within listed shares and corporate bonds – in terms of quantity as well as quality. These two asset classes are therefore initially included in the calculation of the CO2e footprint. Investment activities within government bonds and mortgage bonds are not included. CO2e data is improved on an ongoing basis and we expect that more asset classes can be included in the target as CO2e data matures.
The CO2e footprint of the investment portfolio is calculated in accordance with the recommendations of Finance Denmark’s CO2 model and covers companies’ scope 1 and scope 2 CO2e emissions. The year of comparison as regards the target is the CO2e footprint of the investment portfolio at year-end 2020.
Our efforts to achieve this target involve active ownership and exclusion. Active ownership gives Sydbank the possibility to impact companies’ development through engagement and voting at general meetings. We are basically of the opinion that selling off polluting companies in strategically important industries, eg cement and steel, will not contribute effectively to reducing de facto CO2e emissions worldwide. In some instances the exclusion of companies and countries may however be necessary to ensure a responsible investment process. In the investment process we combine our focus on CO2e emissions with a broader focus on companies’ overall management of ESG risks to ensure that we do not harm other ESG themes when selecting investments with a low CO2e footprint.
One of the large challenges with this target is that we are heavily dependent on actual developments in global CO2e emissions. The companies in our investment portfolio must generally be able to reduce their CO2e emissions significantly if we are to reach our target of a total investment portfolio in compliance with the Paris Agreement.