Portfolio level – Portfolio decarbonisation reference target
Baseline date: 2021 (based on underlying emissions from 2019)
Baseline performance: 125 tCO2e per Euro million invested as reported at year-end 2021 (relating to underlying emissions data from 2019)
Target year(s): 2025, 2030, 2050
- -25% by 2025
- -45% by 2030*
- Net zero by 2050
*Please see ‘Additional Information’ for an explanation of NN’s fair share emissions reductions and approach that aims to deliver real world decarbonisation.
GHG scopes included: Scope 1 & 2 financed emission (metric: tCO2e per Euro million invested).
Scope 3 financed emissions are currently not included because data quality is insufficient. We have plans to include scope 3 over time as reporting develops using PCAF guidance.
However, disclosure and target-setting on material scope 3 emissions is part of the portfolio alignment assessment of investee companies and engagement objectives.
Asset classes in scope: Corporate investments (i.e. listed equity, corporate fixed income. Corporate fixed income primarily includes corporate bonds).
We also developed strategies for Paris Alignment of the sovereign bond and real estate portfolios, which you can find described below in ‘Additional Information’ below.
Methodology: We used the Paris Aligned Investment Initiative’s Net Zero Investment Framework (NZIF) as a main guide for the approach and strategy which we developed together with our asset manager.
Net zero scenarios: The available tools used to inform the target-setting of the corporate investment portfolio included the IEA’s Sustainable Development Scenario (SDS) reference trajectory. Some pragmatic adjustments were made to accelerate the pathway in line with our ambition to steer the investment portfolio towards net-zero GHG emissions by 2050.
Portfolio level – Investment in climate solutions target
Baseline date: 31 December 2021
Baseline performance: EUR 5 billion, or approx. 3% of total AuM
Target date: 2030
Target: We target EUR 6 billion additional investments in climate solutions by 2030, bringing the total AuM to around EUR 11 billion, or approx. 6% of AuM (assuming AuM remains constant).
Methodology: To support our Paris Alignment strategy, NN Group has developed an internal framework to define ‘climate solutions investments’ as part of our proprietary investment portfolio. We have defined climate solutions as investments in economic activities that contribute substantially to climate change mitigation or adaptation.
As an initial step in classifying climate solutions investments, and in line with guidance from the IIGCC Paris Aligned Investment Initiative, we focused on ‘SDG 7’- related areas of energy efficiency and renewable energy. Furthermore, we supported our definitions with external certifications, asset labels, and environmental standards where possible and relevant. Our definitions are as follows:
Green bonds: the green bonds we invest in meet the minimum standards specified in the ICMA’s Green Bonds Principles and the Climate Bonds Initiative Taxonomy and Standards. Furthermore, to qualify as a green investment, it also has to meet additional criteria according to our asset manager’s proprietary Green Bond Assessment Methodology to confirm the actual ‘greenness’ of the projects as well as the issuer.
Renewable energy infrastructure: Investments in projects (equity/debt) for renewable energy infrastructure in solar PV, offshore and onshore wind.
Certified green buildings within our real estate portfolio (equity/debt): our definition is limited to assets with an Energy Performance Certificate (‘EPC’) of class A, or if EPC is not available a high level of building certification (BREAAM or HQE certification of at least ‘Excellent’, or LEED or DGNB of at least ‘Gold’).
Other: Investments that do not fall into any of the categories above, including investments in unlisted entities. For example, impact private equity funds that target and report on clearly defined climate impact KPI’s or funds that have a broader ESG focus, but where clean and renewable energy projects account for a substantial part of the fund’s total assets.
EU Taxonomy alignment: In setting our definitions, we have tried to align as much as possible with the EU taxonomy criteria. Currently, it still proves to be challenging to assess the extent of alignment because the taxonomy requires very detailed information.
Furthermore, it is still uncertain what is accepted as evidence for alignment. For instance, for the acquisition and ownership of buildings, the EU has defined that existing buildings should have at least an EPC class A to qualify for EU Taxonomy alignment. As an alternative, it has to qualify in the top 15% of national stock’s most sustainable properties. In our climate solutions definition, buildings are considered when holding an EPC label A, or if an EPC label is not available a building certification above defined thresholds. However, official guidance is needed on whether building certifications can be used to demonstrate EU taxonomy alignment.
Asset level – Portfolio coverage target
Baseline date: 31 December 2021
At the end of 2021, the AuM invested in assets in material sectors for the corporate investment portfolio classified as ‘achieving net-zero’; ‘aligned’ or ‘aligning’ is 29%.
Please see ‘Additional Information’ for an explanation on how we approach sovereign bonds and real estate assets
Target date: 2025
Target: 45% of assets expected to meet least “aligning” criteria
Asset classes in scope: Corporate investment portfolio (includes listed equity and corporate fixed income)
Data sources: We used various data sources including: Climate Action 100+ Net-Zero Company Benchmark; ISS ESG Climate Solutions data (carbon footprint and carbon budget assessment); Science Based Target initiative (SBTi); TPI assessment from Transition Pathway initiative; CDP; and analyst research.
Asset level – Engagement threshold target
Target: For the corporate investment portfolio, we have set an (i) an engagement threshold of 75% by 2025, meaning that by that time a minimum of 75% of financed emissions are in sectors that already meet net zero ‘aligned’ criteria or will be subject to direct or collective engagement actions (at year-end 2021: 66%).
Additional engagement efforts have been defined to help increase the engagement target, but achieving the target is dependent also on the continuation of the collective engagement programme Climate Action 100+
Methodology: To inform the GHG emissions target-setting process for the corporate investment portfolio, various approaches and methods amongst which the IIGCC recommended carbon budget approach have been used. In addition, portfolio comparisons
of carbon intensity were also made with regards to the industry average and peers to the extent possible. We believe that the intermediate reference targets are ambitious and consistent with delivering a fair share of 50% global reduction in GHG emissions by 2030.
We aim to reach these reference targets by implementing a strategy for portfolio alignment by which we aim to focus on achieving real economy decarbonisation. Together with our asset manager, we developed a methodology to categorise the companies in the
portfolio according to their alignment or potential to align to a net zero pathway. For new investments, we use a best-in-class policy to allocate towards companies who are better positioned in their journey to transition to a low-carbon future. For existing assets, we focus on stewardship and engagement to drive alignment, as we believe this has the best chance of realising real-word impact.
We have also developed asset-class specific strategies for our sovereign bonds portfolio and our real estate portfolio. Refer to ‘Further work’ for more details.
Further work: In addition to the Paris Alignment strategy for the corporate investment portfolio, we also developed strategies for our sovereign bonds portfolio and our real estate portfolio as described below.
Sovereign bonds: For the sovereign bonds portfolio, we developed a strategy together with our asset manager by following the approach as set out in the NZIF. The objective of the sovereign bond portfolio is to achieve net-zero GHG emissions by 2050 by improving the average climate performance of the sovereign bond portfolio over time. Following the NZIF as a guide, investments are scored against a set of current and forward-looking alignment criteria. The Germanwatch Climate Change Performance Index (CCPI) forms a key part of our proprietary scoring methodology to evaluate and compare the climate performance of sovereign holdings. For countries which are not part of the CCPI, our asset manager has developed an own methodology comparable to CCPI to score sovereigns. For new or re-investments, the preference is to allocate towards higher climate performing issuers and/ or eligible green bonds. Also, we seek to increase dialogue with sovereigns on ESG and climate change related topics.
Real estate: For our (non-listed) real estate portfolio, we also developed a strategy using guidance such as from the NZIF. We have set targets for both our directly managed portfolio and our indirect portfolio that focus on increasing the percentage of AuM in net-zero or aligned assets as well as increasing engagement. Further work will be done on setting a quantified target for reducing kgCO2e/square metres. Additionally, a first analysis has been performed toward assessing our potential exposure to physical climate risks in our real estate portfolio. Together with our real estate manager, we have set clear objectives to address physical climate risks in our portfolio. See NN Group’s annual report 2021 (p. 70) for more information on the objectives and assessment of physical climate risks.
For our direct portfolio using the Carbon Risk Real Estate Monitor (CRREM) 1.5°C tool to guide the process, we have set the following interim objectives:
- Our aim is for all our buildings to be on a 1.5-degree pathway by 2030. This is for scope 1, 2 and part of scope 3 (tenant operational emissions). Key measures to achieve these targets are improving energy efficiency, expanding the use of renewable energy and
engagement with tenants. For operational GHG emissions (i.e. scope 1 and 2) we aim to achieve net-zero by 2040, and the remainder by 2050.
- For 100% of standing assets in the direct portfolio to have a Sustainability Certificate as approved by GRESB (beginning of 2021: 83%)
- Further, all new investments in the direct portfolio will also be assessed using the Carbon Risk Real Estate Monitor (CRREM) tool.
For our indirect portfolio, investments in real estate funds, the following targets are set:
- The majority of our funds (>75% based on GAV) to be committed by 2030 to achieving net-zero GHG emissions by 2040 or sooner (scope 1 and 2), and the remainder by 2050 or sooner.
- For our indirect portfolio, our main lever is engagement with the management of the funds in which we invest to increase their ambition to reach net-zero emissions. Fossil fuel investment: NN Group excludes companies that derive 20% or more of their revenues from the mining of thermal coal or from oil sands extraction.
In addition, for NN’s proprietary investment portfolio, we apply a strategy to phase out our investments in companies which are involved in thermal coal mining and coal-fired power generation, reducing our exposure to close to zero by 2030. (‘Close to zero’ refers
to applying a maximum threshold level for coal activity of 5%). See NN Group Responsible Investment Framework policy for more information on our exclusion criteria.
Operational emissions: At NN Group, we are committed to reducing the environmental impact of our own operations by reducing our emissions year-on-year. We have committed to reduce our GHG emissions by 35% by 2025, and by 70% by 2030 compared with 2019. These reductions are independent of offsetting. Following this path, we expect to reach net-zero by 2040.
These targets cover GHG emissions from our buildings, lease cars (scope 1 & 2) and business air travel (scope 3). We intend to realise this through energy-efficient technologies, increased use of renewable energy and reduced business travel.
To help achieve our goals, we have already implemented a hybrid way of work that stimulates colleagues to work from home, and we updated our lease policy in the Netherlands to only allow fully electric lease cars from 2022 onwards. Our aim is to have a 100% electric car fleet in the Netherlands by 2025.
For more information on our targets and net-zero strategy, refer to the following sections in the NN Group 2021 Annual Report: Creating a positive impact on society (pages 44-47); Our response to the TCFD (pages 66-77); Facts and Figures; Investments in climate solutions (pages 127-128); Facts and Figures; Carbon footprint proprietary assets (pages 131-134)
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