The carbon footprint of Varma’s investments has fallen substantially over the past two years. The carbon footprint of equity portfolio decreased by as much as 27% from the 2015 baseline. In 2017, Varma began investing in green bonds. For investors, climate friendliness is both economically sound and responsible.
Varma achieved in two years the CO2 reduction target it had set for 2020 in all asset classes. The greatest change took place in listed equities, where carbon footprint was 27% smaller at the end of 2017 than in 2015.
“This result is encouraging and proves that we are on the right path. We have been focusing on low-emissions industries and reduced our investments in energy-intensive companies,” says Varma’s CIO Reima Rytsölä.
Varma had already excluded electricity companies that generate more than 30% of their electricity with coal from its direct equity investments. In addition, Varma does not invest in coal mining operations and has negligible number of direct oil stock holdings.”
At the end of 2017, the carbon footprint of equities was 39% lower than the benchmark.
Decline also in corporate bonds and real estate
The carbon footprint of listed corporate bonds declined 22% in two years. Compared to the benchmark, the CO2 footprint of corporate bonds is as much as 57% smaller.
The carbon footprint of real estate investments declined by 18% since 2015. This positive development is partly due to the change in Varma’s real estate base, but credit also goes to the measures taken to boost energy efficiency in the properties. In addition, Varma has built solar power plants in its properties, and rental flats have partly transferred to green real estate electricity.
EUR 300 million in green bonds and EUR 400 million in sustainability equity portfolio
In 2017, Varma began investing in green bonds. The debt capital raised through the issuance of a green bond is earmarked for environmentally friendly investments. By the end of 2017, our green bond portfolio was valued at approximately EUR 300 million.
Varma also has a thematic equity portfolio built on sustainable development, the value of which was EUR 400 million at the end of 2017.
“The portfolio includes companies whose business benefits from climate change and that are prepared to make the move to lower-carbon and, in turn, lower-risk operations,” says Hanna Kaskela, Director of Responsible Investment at Varma, who has built the portfolio.
Several industries challenged by climate change
One of Varma’s responsibility targets is mitigating climate change, which has substantial financial, social and environmental implications for current and future generations. Responsibility and return expectations often go hand in hand.
“Investors can’t focus merely on the energy sector or coal. An increasing number of industries are being shaken up by both regulation and changes in consumer behavior,” Kaskela says.
Varma’s goal was to reduce the carbon footprint of its listed equity investments by 25%, that of its listed corporate bond investments by 15%, and that of its real estate investments by 15% by the year 2020. All of these were achieved ahead of time.
“Now that the shorter-term goals have been achieved, we will focus on developing the portfolio towards meeting the longer-term 2-degree target agreed in the Paris climate conference,” says Kaskela.
Responsibility part of share ownership policy
Responsibility for the environment is also reflected in Varma’s share ownership policy, which was updated in 2017 to include new corporate social responsibility policies.
“Going forward, we expect companies to report, among other things, on the impacts climate change has on their business operations now and in future,” says Rytsölä.
The requirement is in line with the recommendation of the international Task Force on Climate-related Financial Disclosures (TCFD). Varma became TCFD supporter in early 2018. At the same time, it also signed CDP’s water and forests programs.
Varma Mutual Pension Insurance Company is a responsible and solvent investor. The company is responsible for the statutory earnings-related pension cover of some 878,000 people in the private sector. Premiums written totalled EUR 4.7 billion in 2016 and pension payments stood at EUR 5.3 billion. Varma’s investment portfolio amounted to EUR 45.4 billion at the end of September 2017.
Further information:
Reima Rytsölä, CIO, tel. +358 10 244 3180 or firstname.lastname@varma.fi
Hanna Kaskela, Director of Responsible Investment, tel. +358 40 584 5045 or firstname.lastname@varma.fi Leena Rantasalo, Communications Manager, tel. +358 50 300 7980 or firstname.lastname@varma.fi
Attachments:
Climate policy for Varma’s investments
Financial information and investments