Industrivärden expects the portfolio companies to have a sustainable approach in all aspects of their operations. This results in competitive companies, enables growth in value and promotes sustainable development of society. Particular impetus is put on material sustainability risks and sustainability-related opportunities from risk mitigation and value-creation perspectives. Industrivärden’s overarching ambition is to:
- be a well-informed owner that sets requirements with a clear sustainability perspective and that contributes to sustainable development of society, and
- be a long-term and sustainable investment that offers a competitive total return at balanced risk.
To materialize these ambitions, Industrivärden conducts the following:
- Continuous analysis and follow-up of the respective portfolio companies in accordance with Industrivärden’s integrated sustainability analysis
- Formulation of owner agendas for the respective portfolio companies and measures to influence them in accordance with Industrivärden’s business model. Industrivärden’s owner agendas and influencing measures are described in more detail on pages 16–21
- Dialogues with prioritized stakeholders aimed at soliciting views in support of further development of Industrivärden’s sustainability work
Industrivärden’s sustainability analysis
Being able to conduct a qualitative analysis of the portfolio companies’ sustainability work – and exercising influence when needed – requires that Industrivärden has deep knowledge about the respective companies’ operations and sustainability-related matters. The sustainability analysis is therefore an integral part of the fundamental analysis that is conducted of the respective portfolio companies. In this way, all sustainability aspects are evaluated from a holistic ownership perspective when assessing the portfolio companies’ boards and management teams, strategic issues and financial performance. The sustainability analysis constitutes a more in-depth evaluation of sustainability issues and encompasses the portfolio companies’ organizations, structures, risk management, utilization of value-creating opportunities and communication.
The analysis is materiality-oriented and ranks the issues that Industrivärden intends to study further as well as matters over which it wants to exercise influence. Important areas of assessment include climate and environmental impacts, social conditions, anti-corruption, and prevention of human rights violations. The portfolio companies are to have the boards, leadership, organizations and resources needed to integrate sustainable business practices and thereby long-term value creation in their business models, processes and offerings.
The main focus of the analysis is on sustainability risks and opportunities to create value. In cases where Industrivärden identifies strategic conditions, risks or value creation opportunities in which it wants to exercise influence, these are defined in Industrivärden’s respective owner agendas, which form the foundation for influencing work. The owner agendas are revised at regular intervals and are set by Industrivärden’s executive management.
Industrivärden exercises influence through representation on the portfolio companies’ nominating committees and boards. Members of these bodies with ties to Industrivärden are to have a current and pertinent understanding of the value creation measures identified for the respective portfolio companies. Against this background, Industrivärden’s owner agendas for the portfolio companies are discussed on a continuous basis by Industrivärden’s board. This allows Industrivärden to have an influence on strategic sustainability issues over time.
Analysis of material sustainability risks
Industrivärden’s material sustainability risks and value creation opportunities exist in the portfolio companies, which are to manage these within the framework of their respective operations. Industrivärden’s risk analysis aims to identify conditions that deviate from Industrivärden’s understanding of an optimal approach in the respective portfolio companies. The analysis covers all material sustainability risks in the respective companies with a base in the prioritized focus areas described above. Climate-related financial risks are one example, where the analysis covers both transition risks and physical risks (effects of a changed climate) from various scenarios and time perspectives. The portfolio companies’ combined sustainability risks make up part of Industrivärden’s equities risk.
The overall outcome of Industrivärden’s risk analysis for the prioritized areas is shown in the tables below. In cases where Industrivärden’s company-specific risk analysis (sustainability risks and value creation opportunities) indicates a need to exercise influence, such recommendations for action are defined in Industrivärden’s owner agendas. Industrivärden’s active ownership thus contributes to long-term reduction of risk levels and to increasing value creation.
Sustainability work in the portfolio companies
The portfolio companies are active in a wide range of industries and are in various stages of development. They therefore face different material challenges and opportunities. From an overall perspective it is Industrivärden’s expectation that:
- they view sustainability as a key strategic issue and conduct first-rate sustainability work within their respective sectors, where sustainability aspects are integrated in their business models, business cultures, strategies, processes and product offerings;
- they develop and strengthen their sustainability work in a structured manner with support from relevant guidelines and measurable goals; and that
- they monitor, evaluate and communicate the progress of their sustainability work, and convey the manner in which they are contributing to long-term sustainable development in the communities in which they operate.
The portfolio companies all face general as well as company-specific sustainability challenges. This pertains to everything from reducing their carbon footprints and changing over to more resource-efficient production – with sustainable products – to ensuring healthy, inclusive and equal opportunity workplaces both in their own operations and upstream in the supply chain, and countering corruption. On the whole they have made great progress in capitalizing on the values created by conducting sustainable business and measure up well in comparison with their industry peers. Further information is available in the respective portfolio companies’ sustainability reporting.