responsible investment at varma

What is the point of responsible

investment?

What is the point of responsible investment? | Reima Rytsölä1


Vision.

Responsibility is part of

Varma’s daily operations.

We actively communicate what

CSR means to us and how our

responsible operations show in

society. We continuously

develop our responsible ways

of operating.

Varma’s CSR focus areas


Responsibility is managing the overall picture

Responsible investment means taking into account the environment (E), society (S) and governance (G) when making investment decisions.

In the long term, ESG influences companies’ success and investment returns.

Investors and companies play an important role in coming up with solutions to today’s challenges, such as climate change.


E

S

G

Responsible investment at Varma

Pirta Wentzel

Responsible Investment at Varma | Pirta Wentzel5

Ethical choices in investment operations


Exclusions

• Tobacco

• Nuclear weapons

• In 2015, European power companies

that generated more than a third of

their electricity production using coal

Concerns direct listed equity and

corporate bond investments

Approximation of the share of exclusions from the

investment universe

Electricity companies

(33% coal)

Tobacco

Nuclear weapons

Others

International norms set the minimum criteria for investments


We require that companies comply with international agreements, including:

• The UN Declaration of Human Rights• The ILO’s labour conventions• The Rio Declaration on Environment and

Development• The UN’s and OECD’s anti-bribery agreements

• Concerns direct listed equity and corporate bond investments as of 2007

• Investments are analysed every six months and monitored continuously

What are typical violations of corporate social responsibility norms?


• Labour rights

• Obstructing the right to unionise,

discrimination

• Sectors: retail; for many sectors, suppliers

• Human rights

• Resettlement in dam projects in Africa and

Eurasia

• Sectors: industrial companies, among others

as main suppliers of electromechanics

• Corruption

• Environment

• Mining operations in Asia: insufficient

processing of mining waste

• Cleaning up of oil leaks and old oil sources

Companies’ estimated share of the

number of companies in the investment universe

Companies suspected

of a violation

Companies with a

confirmed violation

Varma’s exclusions

Other companies

ESG analysis integrated in investment operations


The premise is that factors related to the environment,

society and governance are relevant to the long-term

success of the investment

• Environment

• Use of resources, waste, energy efficiency,

climate change

• Society

• Stakeholder relations, management of the

supply chain, unions, employees

• Governance

• Structure of the Board of Directors, employee

reward systems, bookkeeping and auditing

standards

Extent to which ESG analysis covers all

investments

Ethical exclusions

Varma’s exclusions

ESG

Examples: What is SAP’s estimation of the impact of ESG factors on its turnover?


meur Impact of a one-percentage-point

change on turnover

Employee engagement 40–50

Employee retention 45–55

Business health culture index 75–85

GHG footprint 4

Varma’s climate policy


Published in May 2016, and at the same time we

joined the Montreal Pledge and CDP initiatives.

The goal is to reduce the carbon footprint of

investments by 2020

• by 25% in listed equity investments

• by 15% in listed corporate bond investments

and

• by 15% in real estate investments

Our goal is that by 2020, 95% of listed direct

equity investments will be disclosing their

greenhouse gas emissions.

Varma’s listed equity

investments

Varma Benchmark

index

Differenc

e

Market value (EUR bn) 10.8

Carbon footprint (tCO2e) 1,810,908 2,648,391 –837,482

Share of disclosing companies (in

relation to capital)

85% 83%

Carbon footprint in relation to

revenue (financed tCO2e/€ mill.

financed revenue)

237 324 –27%

Carbon footprint in relation to

invested capital (tCO2e/€ mill.

invested)

168 246 –32%

Carbon intensity (weighted

emissions tCO2e/€ mill. weighted

revenue)

163 188 –13%


We develop our investment operations

such that our investments and investment

processes comply with the 2-degree target.

This means focussing investments in the

longer term on investees that are low

carbon or whose climate strategy aims for a

low-carbon society.

What is meant by a 2-degree world?

Crucial sectors in terms of the carbon footprint


3 sectors with the highest CO2 emissions

Energy

Materials

Utilities

Other sectors


varma.fi > about Varma > financial information and investments > responsible investment

Varma’s responsible investment principles and practices are published online

https://www.varma.fi/en/other/about-varma/financial-information-and-investments/#2888-responsible-investmenty/

Responsible real estate investment

15

Ilkka Tomperi

Responsible real estate investment | Ilkka Tomperi

Responsibility in real estate investments

• In 2011, Varma was among the first to join the Finnish energy efficiency

agreement for commercial properties.

• Under the agreement, Varma committed to a 6% energy-savings target

between 2011 and 2016.

• Varma reached its target in the summer of 2015.

• Various measures have resulted in annual energy savings of some 14,000

MWh, which corresponds to roughly 3,000 CO2 t. The annual reduction in CO2

emissions is equal to the emissions of approximately 700 detached houses

heated with electricity.

Responsible real estate investment | Ilkka Tomperi16

80

85

90

95

100

105

2011 2012 2013 2014 2015

Annual measured energy consumption in comparable real estate

Electricity Heat

Energy consumption reduced in the commercial premises portfolio already in recent years

Responsible real estate investment | Ilkka Tomperi17

58,050 tonnes/year

Homes Business premises

Carbon dioxide emissions (CO2) in Varma’s real estate in 2015

18

33.8 kg/brm2

Responsible real estate investment | Ilkka Tomperi

0

5

10

15

20

25

30

35

40

2015 Target

CO2 kg/brm2

Total Business premises Homes

Target: to reduce the carbon footprint of real estate investments by 15% by 2020

19 Responsible real estate investment | Ilkka Tomperi

21 Responsible real estate investment | Ilkka Tomperi

Building Varma’s sustainable

development equity portfolio

Building Varma's sustainable development equity portfolio | Hanna Kaskela22

Hanna Kaskela

How is a sustainable company defined?



Blacklist, Exclusion

• due to the business sector

• due to an individual event

Varma has published its climate policy

– the target is a smaller carbon footprint

in various asset classes

How does a sustainable company find its way into the portfolio?



Sustainable

portfolio

All listed companies in developed countries

Companies filtered by ESG indices

Companies filtered by Varma

Share selection

27

Klepierre

Unilever

Pfizer commits to reduce GHG emissions from operations 20 percent by 2020 from a 2012 base-year

Sony commits to reduce GHG emissions from its operations by 42% below fiscal year 2000 levels by fiscal year 2020

Dell commits to reduce GHG emissions from their facilities and logistics operations 50% by 2020, using a 2010 base-year

Proximus commits to reduce absolute Scope 1 and 2 GHG emissions by 30% between 2015 and 2025

http://sciencebasedtargets.org/

Building Varma's sustainable development equity portfolio | Hanna Kaskela

Where are we now?

• Portfolio in the building stage.

• Consumer and industrial companies, not oil companies, but electricity

producers.

• Geographically developed markets: Europe, the US, Australia and Canada.

• Returns are measured the same way as for other portfolios, in relation to

the benchmark index.


Responsibility in Varma’s hedge

investments


Distribution of Varma's investments


Return on hedgeinvestments

2005–2015

Sustainable hedge investment practices are beginning to emerge worldwide

• Sustainable investment principles for hedge investments have been

highly fragmented globally.

• In recent years, international investors have shown a growing interest

in the principles of responsible investment as they apply to hedge

investments.

• Varma has a responsible investment policy for hedge investments that

takes into account the special characteristics of the investment form,

as well as a related survey.


Survey reveals “closet sustainability”

The survey included 36 funds for which ESG

factors are relevant when making investments.

• Does the fund have an ESG/responsible investment

policy?

• Yes: 2

• No: 34

• Even if no policy exists for the fund, do the

portfolio managers consider ESG factors in the

investment research and/or when making

investment decisions?

• Yes: 23

• No: 13

Responsible Investment32

Varma is involved in promoting responsible hedge investments

• Varma has been actively involved in the

international dialogue on responsible hedge

investment practices

• Varma has been a member of the Hedge Fund

Standards Board’s (HFSB) Investor Chapter since

2014

• HFSB undertakes to promote particularly

good governance practices among hedge

funds

• A representative of Varma has been a member of

the UN PRI Hedge Fund Steering Committee

since 2014


responsible investment at varma

Presentations & Public Speaking