Varma’s engagement goals are twofold. Firstly, Varma engages with companies in an effort to rectify the situation if the investee company has violated local laws or international agreements. In addition to local legislation, we expect investees to comply with international norms and agreements. This means compliance with, among others, the principles of the UN Global Compact initiative on sustainability and social responsibility. The principles of the Global Compact initiative cover the UN Declaration of Human Rights and Convention against Corruption, ILO labour conventions and the Rio Declaration on Environment and Development.
Secondly, through its engagement Varma also strives to promote sustainability and sustainability reporting to investors. Our aim is to promote the implementation of the UN’s Sustainable Development Goals, both directly and indirectly.
The focus areas of Varma’s engagement can be divided into environmental, social and governance (ESG) factors and separate focus areas that are confirmed annually. The focus areas are confirmed each year in the engagement plan.
In environmental matters, Varma’s engagement is guided by both the climate policy for investments and compliance with international agreements and conventions. The Paris Agreement and local environmental laws are key elements in screening the investment portfolio for violations. In addition to the Paris Agreement’s emission reductions, biodiversity is one of the engagement themes in environmental matters. Varma uses the data provided by a 3rd party to monitor violations of environment-related norms by its investees.
The screening covers, for instance, failures in reducing air pollution and assessing environmental impacts.
In line with our climate policy, we engage with companies to reduce greenhouse gas emissions both directly and in collaboration with other investors. For example, for investees that require enhanced monitoring we create an engagement process to accelerate the decommissioning of coal-based operations. The coal plants of the monitored companies must be decommissioned by 2030.
In social matters, developing working life and respect for human dignity are our key focus areas. Our engagement in social matters is guided by compliance with international agreements and especially taking human rights into account. International agreements address risks that are negative from an investor’s perspective, such as child labour, restrictions on freedom of association, and poor working conditions.
Good governance is built on international guidelines on good governance practices and national corporate governance codes.
Varma requires good governance of the companies it owns. Violations of good governance include violations related to money laundering or corruption. The requirements for good governance are also described in Varma’s ownership policy.