It is easy to envision how we may influence borrowing costs. If a sufficient number of investors line up when a company issues a bond, the company gets away with a lower coupon (interest rate) – especially if those investors are big enough to take part in bond issuance pre-sounding, as we are.
In the stock market there is no fixed interest rate. However, if it is hard for a company to attract sufficient new equity or avoid extensive dilution of ownership, equity comes at at high cost. Given a low share price there is also a potential cost limiting future expansion, even if there are no immediate plans of issuing new equity.
In Pareto Asset Management we spend ever more time thinking about what we want our investment activity to achieve. We think of this as responsible investing. Inasmuch as our portfolio management has a decidedly longterm perspective, it is only natural that we take environmental, social and governance aspects into account. Such factors do influence long-term value creation and sustainability, and they entail a clear ethical guidance: We shall not make investments which constitute an unacceptable risk of contributing to unethical acts or omissions.
“In Pareto Asset Management we spend ever more time thinking about what we want our investment activity to achieve. We think of this as responsible investing.”
In September 2014 we formalised our commitment to responsible investments by signing the UN PRI (United Nations Principles for Responsible Investment). In March 2017, we presented our first PRI report.
In 2017 we became a member of Norsif, the Norwegian forum for responsible and sustainable investments, and of its Swedish sister organisation Swesif. In 2018, yours truly joined the board of Norsif, and later the same year Pareto Global Corporate Bond became the first fixed income fund in Norway and Sweden to receive the Nordic Swan Ecolabel. At the time of writing this, we have just announced a vacant position as an ESG analyst.
In our view, our management philosophy is well suited for this purpose. Active management, thorough analyses of a limited number of companies and a long-term perspective form a good starting point for sustainable investments. If you are serious about achieving something by way of your investments, you just can’t invest blindly in a broadbased index.
Sustainable investment, however, is a demanding exercise. It raises a lot of dilemmas and provides no clear answers, and it requires a lot of subjective judgement. It also entails a lot of erring on our part. We make mistakes, we learn from our mistakes, and we have to admit that we still have a lot to learn.
“Sustainable investment is a demanding exercise. ”
The report that you are now reading is the ninth of its kind. This, too, is a work in progress. We want to provide steadily better transparency and understanding of the way we work with responsible investment.
Included in the report are our guidelines for responsible investments, which have been updated and approved by the board. We also provide some more detail on how we go about implementing these guidelines, and on some of the institutions and sources we utilise.
Last, but not least, we provide an exposé of actual dilemmas: These companies have caused us a bit of headache, and still do. That way you gain an impression of the trade-offs and assessments we have to make in practice. We can make mistakes, but we can not avoid making decisions. In this report you will catch a glimpse of how these decisions have come about.