Varma has clarified its ways of engaging with investees: companies that operate unsustainably may end up on an observation list or blacklist

Varma has further clarified its means of engagement with investees so that it can address unsustainable operations and at the same time promote responsible business in companies. Varma now categorises its investees that violate international norms into three categories, the most severe of which may lead to a company getting blacklisted if it does not sufficiently rectify its operations. Violations in the second most severe category are included in Varma’s engagement process.  

Varma requires its investees to comply with national laws and international conventions and norms, for instance, related to human rights, the environment and labour rights.  
Varma’s investment portfolio, valued at approximately EUR 47 billion, is global, and its direct equity and corporate bond investments are continuously screened for violations. Varma is alerted even for suspected violations.  

“The number of companies involved in Varma’s engagement process in 2020 will amount to less than 10. For these companies, our first recourse is to acquire additional information about whether a violation occurred. If unsustainable actions are discovered, we will try to change the company’s behaviour through an engagement process. Violations usually relate to child labour, poor working conditions, corruption, money laundering or environmental violations,” says Hanna Kaskela, Varma’s Director of Responsible Investment.  

According to Kaskela, the violations typically vary by industry. 

“For example, in the pharmaceutical industry, questionable business ethics may be uncovered, while in the mining industry, the issue may be environmental violations. Environmental screening covers, for instance, failures in reducing air pollution and assessing environmental impacts. When meeting with companies, we ask them questions about responsibility pertaining to their industry in order to survey the current situation,” explains Kaskela. 

Engagement is being responsible – exclusion is the last resort 

If a company in the investment portfolio is suspected of unsustainable operations, for example, in how it treats its employees, Kaskela says the priority is first to establish whether a violation has occurred and then to try to engage with the company to remedy its deficiencies.  

“As an owner, our priority is to engage with the company directly through dialogue and by requiring responsible business operations. This gives us a more lasting impact on companies’ operations. Exclusion, or blacklisting a company, is always the last resort,” stresses Kaskela. 

In engagement cases, the market situation is always factored in as well. 

“If we see that, in terms of investment returns, it would be sensible to sell the shares of the company in question, we won’t keep the shares in the portfolio simply in order to continue the engagement process,” explains Kaskela.  

The means of engagement depend on the size of the ownership share, the goals of the engagement and whether the issue involves addressing a breach of norms or promoting sustainability themes in the investment.  

“Engagement can take place in meetings with companies, by voting at annual general meetings, in phone calls and even via email. In many cases, co-operation partners that assess sustainability also play a significant role in seeing the engagement process through,” she says. 

Blacklisted investments are divested at the latest within a year and a half  

In direct equity and bond investments, Varma classifies violations of international norms into one of three categories: blacklisted investments, i.e. companies that are not invested in; investees that are involved in an engagement process; and investees that are on an observation list.  

“In the most severe category, violations in investee companies are automatically blacklisted. In these cases, the violation has been confirmed by more than one sustainability data producer that monitors compliance with international norms. If sufficient progress is not made to rectify the violation, the investment will be divested at the latest within a year and a half, taking the market situation into account. A company may be removed from the blacklist if it rectifies the situation and the analysis of the case by the sustainability data producers changes,” says Kaskela. 

Violations in the second most severe category are included in Varma’s engagement process. No further investments will be made in an investee company that is in an engagement process without a decision by Varma’s investment committee. 

“The engagement process is monitored according to the targets and schedule set for it. If sufficient progress is not made in the company’s operations, the investment will be divested within the agreed time frame,” says Kaskela. 

Violations in the third category are placed on an observation list. We usually engage with these investees through a co-operation partner. The partner engages in a dialogue with the company, and during the engagement process the company has the right to know the investor’s, meaning Varma’s, name.  

“If we are considering investing in a company on the observation list, we will monitor how the situation involving a suspected violation evolves and how the suspicion affects the value of the investment,” she says.  

Varma’s investment blacklist is not made public 

Some Nordic pension insurance companies publish their investment blacklists for everyone to see, but Finnish companies, like Varma, have chosen not to.  

“There are roughly 40,000 listed companies, meaning potential investments, in the world. We want to focus our resources on the companies we work with, not the ones we do not want to invest in,” says Kaskela. 

Additional information

Varma’s active ownership and engagement principles are published on the company’s website. The new principles complement Varma’s previously published ownership policy

Hanna Kaskela, Director, Responsible Investment,
tel. +358 40 584 5045, hanna.kaskela(at)  
Suvi Vesterinen, Communications Manager, Varma,
tel. +358 40 555 8029, suvi.p.vesterinen(at)

Varma Mutual Pension Insurance Company is a responsible and solvent investor. The company is responsible for the statutory earnings-related pension cover of some 900,000 people in the private sector. Varma’s premiums written totalled EUR 5.3 billion in 2019 and pension payments stood at EUR 5.9 billion. Varma’s investment portfolio amounted to EUR 46.8 billion at the end of September 2020. 


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