Principles for Responsible Investment

Responsible investment takes key factors related to environmental (E), social (S) and governance (G) matters into account in investment decisions.

From an investor’s perspective, making allowances for sustainability does not conflict with return expectations. At Varma, the goal of responsible investment is to reduce risks and to identify investees that benefit from responsible operations as well as the return potential of such investments. Varma’s principles for responsible investment cover all asset classes and are applied differently depending on the asset class and type of investment.

Active ownership and engagement are an integral part of responsible investment. The active ownership and engagement principles describe Varma’s engagement goals, focus areas, methods and reporting.

Varma has signed the UN’s Principles for Responsible Investment.

UN’s Principles for Responsible Investment on PRI website

Responsibility influences our investment decisions alongside financial factors. Responsible investment at Varma is guided not only by our strategy, sustainability programme and principles for responsible investment, but also by Varma’s:

• environmental policy 
• ownership policy
• active ownership and engagement principles
• annual investment plan
• annual responsible investment targets that are defined for each asset class

In analysing responsibility, Varma focusses on the most material responsibility aspects related to the specific industry and asset class.

Varma has published an environmental policy. Varma has identified climate change and biodiversity loss as significant risks in its investment portfolio. 

From 2024 to 2035, regarding climate change we will further develop our investment portfolio:

1. Investing in financial assets that enable the transition to lower emissions and offer business solutions to issues caused by climate change.

2. Developing cooperation in the financial markets to promote climate change mitigation and adaptation.

3. Focusing on the analysis of financial risks brought by climate change in the investment portfolio.

 4. Reporting transparently on the impacts of climate change on our investments and the impacts of our investments on the climate.

Varma analyses the environmental financial risks and opportunities. In response to these challenges, we conduct systematic, portfolio-wide assessments of biodiversity. This includes setting goals and reporting. Active monitoring and updates according to the development of global actions against biodiversity loss are also essential. These actions can promote the protection of biodiversity and reduce related risks to the economy and business operations.

Varma’s ownership policy outlines Varma’s activities as a major shareholder. We regularly meet with the management and boards of directors of the companies in which we have a holding, especially companies in which Varma is a large shareholder. We also participate in general meetings of shareholders and shareholders’ nomination boards; in some cases, Varma is represented in the company’s Board of Directors.

Varma engages with the companies it invests in also with other investors, for instance, through collaborative initiatives and partnerships. Through its engagement, Varma also strives to promote sustainability and sustainability reporting to investors. Our aim is to promote the implementation of the UN’s Sustainable Development Goals, both directly and indirectly.

Varma requires that its investees comply with international standards and agreements, the most important of which are:

• UN Global Compact initiative
• OECD guidelines for multinational enterprises
• ILO labour conventions

Compliance with these standards is monitored by screening our portfolios on a regular basis.

The active ownership and engagement principles describe Varma’s engagement goals, focus areas and methods, as well as how engagement reporting takes place.

For ethical reasons, Varma has excluded the following from its direct investments:

• tobacco companies
• companies manufacturing controversial weapons, such as nuclear weapons, anti-personnel mines, cluster bombs, and chemical and biological weapons, if activities account for a minor propotion
• In government bonds, Varma does not invest in countries that are ranked in the bottom 25 per cent of the UN’s Sustainable Development Goals (SDG) index. In exceptional cases, an investment can be made if the country’s SDG ranking is expected to clearly improve.

Varma has defined industries that require the due diligence process. The due diligence prosess concerns the following industries:

• Industries that are significantly exposed to climate risks, such as the oil & gas industry, electricity & heat production, and the automotive, mining, concrete, construction materials, forestry, transport and chemical industries
• Companies that rely on coal- or lignite-based operations for 5–10% of their net sales
• Industries significantly exposed to biodiversity risks, such as food, pharmaceutical, and cosmetics industries, packaging material manufacturers, fashion and luxury goods industries, and waste management companies
• Alcohol
• Legal cannabis products
• Adult entertainment
• Gambling
• The defence industry, if the manufacturing of controversial weapons accounts for less than 5 per cent of the company’s activities

Varma’s tax strategy and principles are laid down in its tax policy. 

Varma’s Board of Directors approves the Principles for Responsible
Investment.

Updated: August/2024