Varma's revamped sustainable equity portfolio promotes the UN's goals and Varma's own climate targets
The pension insurance company Varma is revamping its equity portfolio that invests in sustainable companies to align it more closely with Varma's investment operations' climate targets and to promote the selected UN sustainable development goals. The selected themes include climate action and responsible consumption. The targeted size of the portfolio in the long term is EUR 500–1,000 million.
The construction of Varma's revamped sustainable equity portfolio is underway and it will include companies that promote Varma's selected UN sustainable development goals (SDG) and assist Varma in reaching its own sustainable development targets.
"The first investments for the equity portfolio were made in June. Currently, the size of the portfolio is EUR 250 million and includes investments in 150 companies. The targeted size of the entire portfolio in the long term is EUR 500–1,000 million depending on the market situation," says Varma's Portfolio Manager Kaisa Ojainmaa.
The themes that have been selected from among the UN's sustainable development goals for the companies are climate action, responsible consumption and circular economy, renewable energy, equal access to medicines and vaccines also in the emerging markets, research and development work, innovations and building a sustainable infrastructure. The equity portfolio invests in listed equities that accord with the above-mentioned themes in Europe, the US and Canada and in Asia's developed markets such as Japan and Hong Kong, and in Australia.
Varma's policy is to make the entire EUR 45 billion investment portfolio carbon neutral by 2035.
"In the sustainable equity portfolio, this means that we can reduce the carbon risk of our investments each month. Moreover, we invest in companies that strive to mitigate climate change through ambitious carbon emission reduction targets or that are carbon neutral or create carbon sinks through their operations," says Varma's Director of Responsible Investment, Hanna Kaskela.
The equity portfolio consists of a passive and active part
The equity portfolio consists of a passive core and actively managed part. The entire portfolio is managed according to Varma's Principles for Responsible Investment.
"The passive part tracks its global ESG benchmark as closely as possible. Controversial weapons such as nuclear and chemical weapons, oil companies, tobacco products and companies producing coal have been excluded from the investments. In addition, companies that break international agreements and standards are also ruled out," explains Vesa Syrjäläinen, Varma's Responsible Investment Analyst, who is in charge of the passive part of the portfolio.
A carbon intensity curve in line with Varma's climate targets is also used in the management of the passive part of the portfolio.
"In practice this means that every time we rebalance the portfolio, we restrict even more the investments made in companies that cause carbon emissions. This ensures that the portfolio is constantly in line with the climate targets Varma has set for 2023, 2025 and 2027," Syrjäläinen continues.
During the second half of the year, 15–20 companies will be selected for the actively managed part of the portfolio, which promote the UN's sustainable development goals that Varma selected. The analysis and selection of companies that promote the selected UN goals is currently underway.
The UN sustainable development goals selected by Varma are officially called Climate Action (SDG 13), Responsible Consumption (SDG 12), Affordable and Clean Energy (SDG 7), Good Health and Well-Being (SDG 3) and Industry, Innovation and Infrastructure (SDG 9).
"The selected sustainability themes offer sufficient diversification opportunities both sector-wise and geographically. They include long-term global targets and help to illustrate the real-world impacts of the investments," explains Kaisa Ojainmaa, who manages the active part of the portfolio.