The sustainability portfolio is the flagship of Varma's responsible investments. Investments are steered to companies that benefit from climate change mitigation. Portfolio Manager Hanna Kaskela does not believe that the recent political developments in the United States will stop the global emergence of renewable energy.
Since summer 2016, Varma has been building a sustainability portfolio, which can be considered the flagship of Varma's responsible investments.
In its climate policy, Varma commits to reducing the carbon footprint of its investments and realigning its portfolio in accordance with the 2-degree target, i.e. keeping the increase in the global average temperature to below 2°C, as agreed in the Paris Climate Change Conference.
"The sustainability portfolio invests in companies that benefit from climate change mitigation. It also includes companies that have their own clear targets concerning climate change or which do not incur major costs from adapting to climate change," says Varma's Portfolio Manager Hanna Kaskela, who is building the sustainability portfolio.
The current value of the portfolio is approximately EUR 300 million, and it includes both industrial and consumer companies from a variety of industries in the developed markets.
"A company's sector is not a limitation, as long as it's not an oil or coal mine company. The portfolio also encompasses power companies that have eliminated or are in the process of eliminating fossil fuels from their production," Kaskela explains.
Alongside climate change mitigation, the sustainability portfolio targets strong returns. From the perspective of calculations and monitoring, the portfolio is built and managed in the same way as standard equity investments and, in keeping with Varma's other equity investments, its return is benchmarked against an index.
Kaskela believes that investing in renewable energy is profitable, although many fear that the battle against climate change will suffer a setback as a result of the plans of the future US president.
"Changes in US policy and regulations may slow the progress, but on a global scale I don't believe that energy investments will change course," Kaskela says.
Investor calls for responsibility
Taking sustainability into account in investments relates first and foremost to risk management and the pursuit of returns – it is not about greenwashing.
"A company that takes good care of its commitments, employees and supply chain will succeed better in the long term than one that neglects its responsibilities," Kaskela says.
The dominant theme for the sustainability portfolio is currently climate change, but according to Kaskela, it is not carved in stone – there is room for changes. Future themes may involve, for example, water supply issues, vehicle electrification or cyber security.
"In the future, more and more people will be driving electric cars, and that electricity must be produced in one way or another – but not with fossil fuels. Regulation is in a state of flux, and it's interesting to try to evaluate who will have stranded assets in their balance sheets and who will benefit," Kaskela concludes.
For more information, please contact:
Hanna Kaskela, Portfolio Manager, tel. +358 40 584 5045
Leena Rantasalo, Communications Manager, tel. +358 50 300 7980
Varma Mutual Pension Insurance Company is the most solvent earnings-related pension company and largest private investor in Finland. The company is responsible for the statutory earnings-related pension cover of some 860,000 people in the private sector. Premiums written totalled EUR 4.6 billion in 2015 and pension payments stood at EUR 5.2 billion. Varma's investment portfolio amounted to EUR 42.4 billion at the end of September 2016.