“The changes have been fairly significant the past decade. Some of these can be seen in the way companies are reporting and how they handle social responsibility and ethical dilemmas. I think there are several reasons for this. To a certain degree, it can be perceived as a positive effect of the information society and globalization, says Jeanett Bergan, who is head of responsible investing in KLP Kapitalforvaltning.
Active use of ownership
Her employer, Kommunal Landspensjonskasse – or, KLP – is one of Norway’s largest life insurance companies. The company delivers pension, financial and insurance services to local and regional governments, to health institutions and to other companies in the private and public sectors.
KLP’s policy as an institutional investor is to invest broadly, ensure that its stock investments are responsible, and use actively its ownership stakes. Accordingly, KLP communicates these requirements to the publicly listed companies in which it invests.
KLP does not invest in companies that violate structural norms in areas like human rights, labor rights, corruption and environment. Nor does it invest in companies that produce tobacco or specific weapons types. KLP informs about the firms that are either removed or added to its stock portfolio, as well as those on its observation list.
“The most important measure, when it comes to how we deal with the companies in our portfolio, is the way these companies conduct themselves. It is in our policy that we want to help drive forward sustainable value creation, which is principally about respect for the environment, people and society,” says Bergan.
‘Open for dialog’
Following reports in the Norwegian media in 2008 criticizing working conditions for construction workers at the Qatalum project in Qatar, KLP chose to enter into a dialog with Hydro to investigate.
“Our experience is that Hydro is open to dialog, in this case, too, where we concluded that there was no foundation for the criticism,” says Bergan. “We went to Qatar to get a better picture of how the company deals with challenging questions. We found out that Hydro has helped establish a standard far beyond what is common in Qatar. It is important for us to be able to say that the company is responsible and willing to raise standards, like for guest workers.”
She points out that excluding companies is not one of KLP’s objectives. “We believe it is more constructive to work for improvement and to clean up the things that are negative and not up to standard. Normally, we will take a starting point in specific information and then enter a dialog with the actual companies,” says Bergan.
Reactions from the companies vary greatly, from accepting the criticism to rejecting it as unwarranted. Nonetheless, Bergan says she considers the possibility to influence to be relatively good. She says KLP also participates actively in shareholders’ meetings and communicates clearly its demands and expectations.
Dilemma in investing broadly
She points out that an enterprise that wishes to invest broadly can also face dilemmas. “One example is climate,” says Bergan. “We are busy with climate challenges that can be real risks for companies in the portfolio. The way these companies choose to meet the changing constraints and more demanding future is important, but because we invest broadly and passively, this will rarely impact our investment decisions. But this is where it is important to have a constructive dialog.”
Is KLP concerned most about finding weaknesses in good companies, or revealing the ones that are genuinely bad?
“Our focus is directed toward the ‘bad ones.’ This is about risk, in several senses, like loss of reputation – both for the company and for KLP as an investor,” says Bergan.
“Hydro had the highest point total in KLP’s ranking of companies last year, based on sustainable value creation, and it will be among the best this year, too. The coexistence between the company’s goals, its reporting and its conduct is quite good.
“KLP is not a big investor in an international perspective. But I still maintain that we have influence,” she says. “Part of this is because we have the image of being open – that we are open about our expectations, and clear. In general, it’s much easier to gain ground with your arguments than it was just 10 years ago.
“Companies have matured in their relationships with the outside world. Some of this can be seen in the improvements in their reporting routines and in the way they are handling social responsibility and the challenges related to sustainability.”
