Pirta Wentzel: Varma’s climate policy – one year later

Pirta Wentzel: Varma’s climate policy – one year later

4.4.2017

I will always remember the spring of 2016 as a time dedicated to Varma’s climate policy. The carbon footprint, the Paris Agreement, the emissions budget, and the challenge of applying these in different asset classes was a messy affair that at times seemed impossible to figure out. Setting sensible and concrete targets was especially frustrating – it seemed that for every option we found more cons than pros. Our working group made up of several people discussed topics such as the ambitious 2-degree target and the various definitions of debt used in relation to the carbon footprint – and, of course, there were several interpretations of both.

In the end, the hard work paid off. Varma’s climate policy was published in May 2016. We set targets for reducing the carbon footprint of our direct investments by 2020, as well as the longer-term target of developing our investments in line with the 2-degree target set in the Paris Agreement. We also published the carbon footprint of our direct investments, along with a number of key indicators, so that the public can also keep track of our progress.

The publication of this information in no way meant that our work was done – the efforts continued on a daily basis.

In equity investments, we considered how we can reach our target of reducing the carbon footprint, as well as how to continuously monitor the target. The carbon footprint shrunk 22% in one year as a result of reducing our holdings in emissions-intensive industries. The level we achieved is considerably lower than the benchmark, and the result will vary in future.

Corporate bonds, on the other hand, caused more of a headache, as the definition of debt we were using proved unreliable. After looking into the matter, we adopted another definition that seems much better. The carbon footprint declined 25% in one year when calculated using the updated figures. The result can also be explained by a reduction in our emissions-intensive holdings.

We began charting aspects related to climate change in our funds, too. In equity funds, this was completed in autumn 2016, and the outcome was, on average, a favourable situation. The charting continues for other funds.

In real estate investments, the climate policy has meant several fun initiatives, from solar panels to charging stations for electric cars. Of course, improving energy efficiency remains the cornerstone of the operations and is the most important factor in terms of the carbon footprint.

Our long-term target of a 2-degree world is also on the agenda. In that respect, we have commissioned an analysis of our direct equity investments for the second year now, for those industries with sufficient available data. Nowadays, these include the automobile sector, fossil fuels and electricity production. When it comes to both fossil fuels and electricity production, Varma’s investments are clearly overweighted compared to 2-degree scenarios. In the automobile sector, investments in fuel-engine vehicles are greater than the scenarios, while investments in electric cars are less, which is largely due to listed automobile manufacturers being focused on traditional car models.

The main focus in 2017 will be on updating Varma’s share ownership policy, which will also include corporate social responsibility. Carbon figures and more in-depth charting of companies’ reporting practices will continue to be part of our work efforts this year.

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