Environmental, Social Governance (ESG)
Securian Asset Management, Inc.’s (Securian AM) business has been built with a risk and liability management focus, grounded in our long, successful history investing for Securian Financial Group, Inc.’s (Securian Financial) insurance general accounts. We stay true to our purpose, our values and our St. Paul, Minnesota roots, while being innovative and nimble to help prepare our clients to meet their investment objectives from a position of strength.
Our parent company, Securian Financial, is part of a financially stable mutual insurance company committed to high ethical standards and a connection to the people and institutions it serves. We’re working in partnership with Securian Financial as we develop and integrate our ESG practices over time.
Securian Financial is a founding member of the US chapter of A4S, a project developed by the Prince of Wales to inspire finance leaders to shift toward sustainable business models. Securian Financial has signed the Accounting for Sustainability (A4S) Net Zero Statement of support, joining organizations worldwide in committing to publish a pathway to net zero emissions.
This policy was developed by Securian AM’s ESG policy working group. We are committed to ongoing review and improvement to this policy as we advance deeper integration of ESG factors into our investment decision-making processes.
For the purposes of this document, ESG factors refer to risks and opportunities that stem from environmental, social, and governance roots.
Our investment decisions contribute to the incentives that guide progress and investment in our communities. Over the long run, we believe investment returns are dependent on sustainable economic growth, underpinned by a healthy environment, balanced demand, and equitable access to resources. These dependencies are important. As stewards, we have an obligation to understand our impact through an ESG lens while always putting our clients’ interests first.
We do not believe that “ESG” is a quantitative factor in the academic sense of the word. Rather, strong, holistic management practices serving more broadly defined constituencies are likely to be supportive of reduced volatility and improved market competitiveness over time.
ESG considerations help shape public policy, the regulatory environment and the competitive landscape. The scientific consensus around climate change is clear, and this is shaping up as a driver of winners and losers over the coming decades. ESG factors can have a real impact on company performance, primarily through litigation, capital spending, and reputational effects. Companies that manage environmental risks well are more likely to avoid unnecessary operating costs and limit stranded capital investments. Good governance and strong social practices support a sustainable, fair, and balanced approach to meeting the needs of all important constituencies, strengthening investor confidence.
Purpose and Scope
This policy aims to provide transparency around Securian AM’s ESG views and its commitment to continuous improvement.
Our goal is to help our clients to meet their investment objectives from a position of strength.
Thoughtful integration of ESG risks and opportunities should incorporate an assessment of relevant time frames as well as the industry or issuer contribution to the relevant benchmark. As such, we seek to price ESG elements appropriately while maximizing our investment universe and preserving our ability to deliver performance. All things being equal, we favor investments with a strong ESG profile as we believe this is often a hallmark of a well-managed and sustainable business model.
ESG Incorporation Approaches
ESG risks should be considered in concert with other fundamental factors. As long as the overall risk is deemed investable, portfolio managers can use a wide range of mitigants including premium pricing, limits on the tenor of the investment, internal ratings adjustments and “best-in-class” approaches. In addition, portfolio managers may incorporate affirmative goals that strive to capitalize on opportunities that may arise from ESG factors.
Data quality and consistency across the three very different aspects of socially responsible investing are nascent and evolving, and relevant ESG factors differ from industry to industry. It’s too early to evaluate the merits of ESG-specific investment strategies, but we seek to incorporate normalized data into our assessment as it becomes available.
We view a holistic approach to corporate governance favorably. Well managed companies are able to balance the needs of all stakeholders. While integrated elements differ from strategy to strategy, corporate governance is almost always an important factor influencing investment decisions.
REIT Equities and Real Assets:
ESG factors influence stock selection within our real estate and real asset equity strategies. Screening for “Best-In-Class” organizations is central to our process. We place a premium on strong governance, and we vet management ourselves and document our conclusions. For example, when issues such as labor relations come to our attention, the team may assess the issue within the context of governance and business ethics as part of our qualitative factor analysis. We supplement this information with extensive governance research conducted by Green Street Advisors and Glass Lewis as a check on our conclusions.
Due diligence on portfolio property quality is another important component in our Best-In-Class assessment. Experience leads us to believe that environmental efficiencies that meet or exceed regulatory standards render cost savings and may serve to reduce environmental problems and litigation. For real asset sectors, we focus on the long-term value of assets, taking into account environmental and social considerations.
Commercial Mortgage Loans:
We underwrite commercial mortgage loans with several key ESG considerations in mind. We review sponsors and operating entities to ensure alignment with our clients’ interests. We conduct a review using Lexis/Nexis to identify concerns related to unethical behavior and prior bankruptcies. Our underwriting process includes a Phase 1 Environmental Site Assessment on every property. If this uncovers unexpected risks, we order a Phase 2 assessment to develop a complete picture of relevant issues.
Public Fixed Income:
Our fixed income investment process seeks to identify industry inflection points that give rise to mispricing. We believe that strong fundamental research can identify idiosyncratic opportunities at the company level. Both industry and company assessments integrate ESG risks.
Industry analysts develop an ESG score based on a qualitative assessment of 4-7 industry-specific factors. This score is one of 6 equally weighted components in our industry risk rating. Analysts incorporate material ESG risks into the company investment thesis when relevant. Material risks are cited as pros or cons within the thesis documentation.
REIT Equities and Real Assets:
Equity analysts supporting active strategies seek opportunities to meet with company management. Contacts may occur at industry conferences, on- and off-site meetings and tours, as well as group and one-on-one conference calls. Notes from these meetings are documented and archived in our internal research data base.
Securian AM has a formal proxy voting policy in place. When permitted by client mandates, portfolio managers vote on individual company proxies, using Glass Lewis for research support. This directs engagement on issues that rise to the shareholder approval level.
Oversight and Reporting
Securian AM is committed to these principles in both theory and practice, reflecting our belief that our investment actions matter. We’re committed to sharing our progress as we build upon our strong asset management foundation and formalize our responsible investment policy. Our near-term plan includes documenting and reporting on our ESG initiatives as we strive to integrate best practices into our investment strategies across the firm.