Varma looked into the responsibility of the fund management companies – almost all are aligned with Varma’s principles

More than four out of five fund management companies managing Varma’s investments have signed the UN Principles for Responsible Investment. The majority of them also have an ESG policy covering all investments, and they are committed to respecting human rights in accordance with the UN principles.

Varma comprehensively examined the responsibility of its fund management companies by conducting an extensive survey. Of the companies that responded to the survey, 85 per cent had committed to the UN Principles for Responsible Investment, and half had also linked ESG goals to management rewards.

This was, to date, Varma’s most extensive survey conducted among fund management companies. The fund management companies were presented with 68 questions on, for example, how they take into consideration their investees’ human rights issues, whether they have an organisation-wide ESG policy, and whether the fund management companies have joined international investor initiatives aiming to reduce emissions, such as the SBT initiative advocating for science-based emission reductions.

The survey covered all of Varma’s asset classes. The value of the investment assets in these investments is EUR 31.9 billion, i.e. 56.8 per cent of Varma’s entire investment portfolio.

“As a major investor, we must also be able to disclose information about the responsibility of investments that we do not manage ourselves. With this survey, we wish to increase transparency in our fund investments. At the same time, the survey is a tool for us to implement our responsibility goals, as it allows us to monitor whether responsibility is being developed in the fund management companies in a way that matches the accounts they have given us,” says Hanna Kaskela, Senior Vice President, Sustainability & Communications at Varma.

Responsibility principles fully or partially aligned with Varma’s principles in 97 per cent of the companies

Something worth pointing out is that the fund management companies largely reflected Varma’s own principles for responsible investment. A total of 97 per cent of the respondents said that their principles are either partially or fully aligned with Varma.

“This is how it should be because a fund management company’s responsibility is assessed whenever an investment decision is made. The survey we just conducted does not describe the operations of fund management companies in general; it specifically looks into the operations of the funds in our investment portfolio. As a rule, they reflect our own responsibility practices. We will most likely never reach a full hundred per cent because the principles for responsible investment evolve with the times and fund management companies react to changes at their own pace,” Kaskela says.

Of the respondents, 62 per cent said they report to Varma any norm violations against the ESG principles. Norm violations are severe shortcomings in companies’ operations or operation chains that breach international agreements and laws. Sixty-six per cent of the fund management companies that engage in reporting said they report breaches as soon as they become aware of them.

“In monitoring norm violations, we use a database maintained by an external service provider. It is very important to bring norm violations to light because it helps us identify our own sustainability risks and monitor their development,” Kaskela says.

Response rate of fund management companies very good

A total of 96 per cent of the companies that received the survey responded to it. The responses differed somewhat according to sector and fund type. Some respondents had come quite a long way in their responsibility efforts, some had more work left to do.

The questions were divided into four categories: 1), Strategy & Governance 2), Stewardship 3) Targets & Outcomes and 4) Disclosures.

Going forward, Varma intends to conduct the same survey regularly to ensure follow-up. This will also show in which direction the fund management companies develop their operations and whether responsible investment brings the desired results.

Summary of key findings:

• Ninety-four per cent of the fund management companies had a policy governing responsible investment.
• Ninety-seven per cent of the fund management companies had principles for responsible investment aligned either fully or partially with Varma’s principles.
• Eighty-seven per cent of the respondents had an organisation-wide ESG policy.
• Eighty-five per cent of the respondents had committed to the UN Principles for Responsible Investment.
• Fifty per cent of the respondents had linked remuneration to ESG outcomes.
• Seventy-five per cent of the fund management companies had a human rights policy.
• Fifty-four per cent of the fund management companies said they exclude investments from their holdings. The blacklists usually concerned weapons, the tobacco industry, adult entertainment, lignite and coal production, fossil energy and human rights violations.
• Twenty-two per cent of the respondents had set SBT emission reduction targets.

Varma’s ESG questionnaire for fund manager companies (pdf)




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