The carbon footprint of Varma’s listed equity investments declined by as much as 22% in 2016. Reductions were also seen in corporate bonds (–25%) and real estate (–8%). This result was achieved by focusing on low-emissions industries and by avoiding emissions-intensive industries such as energy and mining. Climate change mitigation is the focal point of Varma’s responsible investment.
At the end of 2016, the carbon footprint of Varma’s equity investments was 186 tCO2e in relation to net sales, which is 22% lower than the previous year.
“We have focussed our investments on low-emissions industries and reduced our investments in energy-intensive companies,” says Varma’s CIO and Deputy CEO Reima Rytsölä.
During the year, Varma’s equity portfolio came very close to reaching the CO2 reduction target that was set for the year 2020 in the company’s climate policy for investments. At year-end, the carbon footprint of the equity portfolio was 36% lower than the benchmark.
“This result is encouraging and proves that we are on the right path. Such a low carbon footprint is, however, vulnerable to changes in equity investments in emissions-intensive industries, so we are cautious about being overly positive. It is likely that the carbon footprint will fluctuate even to a considerable degree from one year to the next,” reckons Rytsölä.
Starting-level measurements conducted a year ago indicated that the carbon footprint of Varma’s listed equities was low compared to the benchmark. Varma had already excluded from its direct equity investments electricity companies that generated more than 30% of their electricity with coal.
Decline also in corporate bonds and real estate
The carbon footprint of listed corporate bonds declined 25% in relation to net sales during the year. We reduced our investments in emissions-intensive companies in several industries, such as energy and mining. The carbon footprint of corporate bond investments was 50% lower than the benchmark.
In 2016, the carbon footprint of Varma’s real estate investments shrunk by 8%. This positive development is partly due to the change in Varma’s real estate base, but credit also goes to the measures taken to boost energy efficiency in the properties. Varma has also started using solar power in its properties.
Climate change mitigation the focal point of responsible investment
Mitigating climate change was the focal point of our responsible investment efforts in 2016.
“Climate change is one of the most critical factors that investors must prepare for. It will have substantial financial, social and environmental impacts on current and future generations,” says Rytsölä.
Varma’s goal is to reduce the carbon footprint of its listed equity investments by 25%, that of its listed corporate bond investments by 15%, and that of its real estate investments by 15% by the year 2020.
In the long term we are developing our portfolio such that our investments will be in line with the 2-degree target that was agreed on at the Paris climate conference. Reaching the 2-degree target will require, above all, a radical reduction in the use of fossil fuels.
A portfolio dedicated to climate change
In 2016 we built a climate-change-themed portfolio made up of companies whose operations benefit from climate change mitigation, for instance, in technology and renewable energy production. Companies that are prepared to make the move to lower-carbon and, in turn, lower-risk operations will also be selected for the portfolio. By year-end, the portfolio was valued at approximately EUR 400 million.
“We will continue to integrate our climate policy with our investment processes in 2017. In terms of our direct investments, this means systematically reviewing climate issues, keeping an eye on the carbon footprint and expanding the analysis of the 2-degree target to many other industries,” lists Rytsölä.
Where hedge funds and private equity funds are concerned, the goal is that by 2020 more than half of Varma’s fund capital has a climate change policy and climate change is an integrated part of the investment process. We will also require that the funds report on their operations.
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.
Reima Rytsölä, CIO, tel. +358 10 244 3180 or firstname.lastname@example.org
Leena Rantasalo, Communications Manager, tel. +358 50 300 7980 or email@example.com