Investments in Danica Balance Responsible Choice

Investments in listed companies are classified as sustainable investments when more than 50% of the investee company’s revenue comes from products and solutions that contribute positively to one or more of the UN Sustainable Development Goals.

At the same time, no more than 5% of the company’s revenue may be related to products and solutions that have a negative impact on the UN Sustainable Development Goals. Additionally, the company must do no significant harm to society and must comply with principles of good corporate governance.

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In order to ensure a balanced risk diversification, investments are placed in a broad range of listed companies via two share indices. These investments follow an EU Paris-Aligned Benchmark (PAB) and an EU Climate Transition Benchmark (CTB), the framework of which has been set by the European Commission. The aim is to optimise the investment mix in an index that can support the goals of the Paris Agreement.

Overall, the companies in the PAB and the CTB investment indices must have a weighted average carbon intensity that is at least 50% and 30% lower, respectively, than the broader financial market. The aim is to reduce the overall carbon intensity of the companies in the index by 7% annually.  

Investments that align with these benchmarks are defined by the EU as sustainable investments.

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Investments in corporate bonds are classified as sustainable investments when more than 50% of the investee company’s revenue comes from products and solutions that contribute positively to one or more of the UN Sustainable Development Goals.

At the same time, no more than 5% of the company’s revenue may be related to products and solutions that have a negative impact on the UN Sustainable Development Goals. Additionally, the company must do no significant harm to society and must comply with principles of good corporate governance.

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Corporate bonds, sovereign bonds and supranational bonds are considered to be sustainable if the bonds meet the guidelines set in the ICMA’s Principles for Green Bonds or the EU Green Bond Standard.

Among other things, this means that the bond issuer must document that the capital raised from the bond issuance is used to finance projects and activities that have a positive effect on climate, environmental and social issues, contribute significantly to one or more of the UN Sustainable Development Goals, comply with the EU Taxonomy in regard to environmentally sustainable activities, and adhere to principles of good corporate governance. 

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Alternative investments (securities that are unlisted) are primarily made through funds managed by investment managers outside Danica. These investments are targeted towards sustainable investment funds (classified as Article 9 under the SFDR).

In connection with the investment, and as part of the ongoing follow-up process, we assess the investment model and investment processes of the fund to ensure that these meet our requirements and expectations and fall within the scope of the strategy.

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Companies that generate 5% or more of their revenue from fossil fuel-related activities. This includes energy production, equipment, exploration, distribution, refining, transportation and storage of fossil fuels such as coal, oil, gas and tar sands.

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Companies that generate more than 5% of their revenue from activities related to military equipment. This includes the manufacturing, maintenance, repair and distribution of combat equipment (e.g. tanks, ammunition and missiles) or solutions such as radar equipment, software and monitoring equipment adapted for military use.

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Companies involved with controversial weapons that are prohibited by international conventions or are considered controversial due to the indiscriminate damage they cause. 

This includes companies that produce, sell, maintain and supply key components for cluster munitions, anti-personnel mines, biological and chemical weapons, and nuclear weapons outside the Non-Proliferation Treaty.

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Companies that generate more than 5% of their revenue from activities related to alcoholic beverages that contain more than 2.25% alcohol by volume. Among other things, this covers breweries, distilleries, retail outlets that specialise in alcohol and companies that supply raw ingredients for the production of alcoholic beverages.

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Companies that generate more than 5% of their revenue from activities related to tobacco and associated products such as e-cigarettes.

This includes growing, harvesting, preserving and processing of tobacco leaves, production and distribution of tobacco products and related tobacco-based products.

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Companies that generate more than 1% of their revenue from gambling. This covers, for example, betting companies, casinos, lottery operators and companies with products for the gambling sector.

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Companies that generate more than 1% of their revenue from the production, distribution or showing of pornographic material.

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Investments are excluded on the basis of three sub-categories:

Norm-based exclusions:

Companies that are involved in activities considered unacceptable in relation to international norms such as those defined by the UN. Such activities include environmental pollution, significant negative impact on biodiversity or the climate, breaches of human and labour rights, and involvement in corruption.

Governance-related exclusions:

Companies that to not adhere to Danica’s principles for good corporate governance practices. This is assessed in relation to four pre-set indicators: sound management structures, employee relations, remuneration of staff and tax compliance.

Country exclusions:

Countries on relevant sanctions lists published by the EU, UN, UK and USA.

Similarly, countries are excluded that Danica assesses to have significantly weak sustainability practices based on general sustainability criteria, governance and social safeguards, such as environmental issues, freedom of expression, human rights, child labour, health, corruption and rule of law.

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Companies that are associated with certain sustainability-related themes or controversies.

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Investments are excluded if we assess that the investee company does not adequately manage its overall sustainability risks and that this has a potential or actual negative impact on the value of the investment and/or a material negative impact on society.

This can be due to aspects such as poor employee working and employment conditions or lack of product safety; inadequate diversity, equity and inclusion (DE&I) processes; inadequate data protection processes; and inadequate handling of climate- and environment-related aspects.

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Companies that show a strongly negative performance across one or a combination of PAI indicators.

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The investment tracks Paris-Aligned Benchmark (PAB) exclusions, which target companies involved in certain business activities. Among other things, this includes excluding companies involved certain coal or oil-related activities and exceed set thresholds for the amount of revenue they generate from oil and coal.

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