1 September 2017

NN Group conducts carbon footprint analysis of investments

Dutch insurer NN Group has published the results of its first carbon footprint analysis, and said the study could ultimately lead to divestment from companies judged to pose climate change transition risks.

The report assessed equities and fixed income investments with a value of €81 billion, or 61% of NN Group's total proprietary assets.

The study, which NN said it believes is the first by an insurer aside from French company AXA, revealed that the group's total portfolio emitted 309 tonnes CO2 per €1 million invested as of 31 December 2016.

NN Group conducted analysis of both the carbon footprint and the weighted average carbon intensity of its assets. The latter is a metric which seeks to describe the carbon efficiency of underlying entities in the portfolio, by linking the emissions to revenue. The carbon footprint (ownership) approach highlights an investor's exposure to carbon emissions through its investments.

A corporate carbon footprint is the amount of greenhouse gas (GHG) emissions that an organisation releases directly or indirectly into the atmosphere, measured in tonnes of carbon dioxide equivalents (tCO2e) per year. This can then be translated into an intensity number, by dividing it by the company's revenue, typically expressed as tonnes per €1 million.


The Greenhouse Gas Protocol, which provides accounting standards for businesses, governments and other entities, classifies an entity's GHG emissions in three 'scopes':

  • Scope 1, or 'direct', emissions occur from sources that are owned or controlled by the entity;
  • Scope 2 emissions occur from the generation of purchased energy consumed by the entity;
  • Scope 3 emissions are a consequence of the activities of the entity, but occur from sources not owned or controlled by the entity.

Jelle van der Giessen, NN Group's chief investment officer, told Environmental Finance one of the key follow-up aims is to increase the amount of assets covered by future carbon footprint analysis, particularly mortgages, which aren't included but that constitute a significant part of the group's assets. The other main asset categories that were not included in the analysis included real estate, private equity, and cash.

NN Group's portfolio-weighted average carbon intensity was 232 tonnes of CO2 per €1 million of revenue.

The company assessed its fixed income and equity portfolios separately. Its fixed income portfolio represents 96% of the total assets assessed.

Within fixed income, investments in government bonds constitute 72% of NN's fixed income portfolio, with the remaining 18% in corporate fixed income securities. Corporate fixed income generated 238 tCO2e (per €1 million of revenue), while government bonds contributed 232 tCO2e.

Within the corporate fixed income portfolio, the highest emitting sectors were utilities, basic materials, and industrials, which combined account for 81% of the portfolio's carbon footprint, despite the fact they only constitute 13% of its weight.

The group did not provide details of the fixed income portfolio's performance relative to a benchmark.

Its equity portfolio, which makes up 4% of the assessed assets, was 29% less carbon intensive than its benchmark, the MSCI EMU Mid Cap ex Financials. The equity portfolio's carbon intensity was 260 tCO2e per €1 million of revenue, compared with the benchmark's 364 tCO2e per €1 million of revenue.


Van der Giessen said the analysis would be used as a tool to improve engagement with companies that have the highest carbon intensity and are therefore judged to be a climate-related risk. Any decision to divest from a company would only come if they showed no improvement, and is likely to take between two and three years, he said, to allow time to assess whether its engagement has been successful.

He also said the analysis is important for the company to understand what climate change-related risks exist in its investment portfolio, and marks the first step toward reducing that risk.

NN said that through the report it hoped to identify and reduce these climate-related risks. To achieve the Paris Agreement goal to keep climate change to 'well below' 2°C more stringent regulations are likely to be required. There are growing fears in the industry that to meet these targets, companies that are not actively working to reduce their GHG emissions could leave several of their assets 'stranded' and thus negatively affect cash flow and profits.

Making the link between carbon intensity and value of assets at risk is for the investment analyst to determine, according to van der Giessen.

"If we were to ask the portfolio managers to build the corporate portfolio, if they think it will add or detract from the valuation, I expect [NN Investment Partners'] analysts will take the carbon footprint analysis into consideration.

"How much impact could this have on the valuation of a company? It's an interesting debate, whether information on carbon emissions, could alter the valuation of a company," he added.

Van der Giessen said he found the carbon intensity metric particularly interesting. "It can add something to what we've already been doing," he said.

"The carbon footprint itself is less interesting, even though it allows for comparison to other companies.

"To be frank, carbon footprint analysis is a learning journey all the time. We would like to be at the front of this learning, and continually reduce both our carbon emissions and our exposure to certain risks incorporated in our portfolio," he added.

"There's a lot of discussion about The Greenhouse Gas Protocol's Scope 3 classification of emissions, which we've been trying very generically to add to this analysis, but it's still a very rough estimation. There's a bit of uncertainty as it's difficult to [get data that is] very concrete," said van der Giessen.

All figures mentioned in NN Group's carbon footprint report are based on Scope 1 and 2 GHG emissions (see box), but the group included estimates for Scope 3 emissions, provided by ISS-Ethix.

These estimates allowed the Dutch company to consider emissions-generating activities within supply chains, as well as the emissions of products. These Scope 3 emissions are likely to represent the majority of NN's total corporate emissions, it said.

The group said it will continue to evaluate the results and explore other metrics and more forward-looking tools that are introduced to help assess climate-related risks and opportunities.

It also said it supports disclosure initiatives such as the UK-based CDP and the FSB's Task Force on Climate-related Financial Disclosures.

Jelle van der Giessen will be speaking at the Insurance & Climate Risk conference in London on 15 November. For more information on the agenda and for registration click here.