responsible investment at varma
TRANSCRIPT
What is the point of responsible
investment?
What is the point of responsible investment? | Reima Rytsölä1
What is the point of responsible investment? | Reima Rytsölä2
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.
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.
What is the point of responsible investment? | Reima Rytsölä4
E
S
G
Ethical choices in investment operations
Responsible Investment at Varma | Pirta Wentzel6
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
Responsible Investment at Varma | Pirta Wentzel7
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?
Responsible Investment at Varma | Pirta Wentzel8
• 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
Responsible Investment at Varma | Pirta Wentzel9
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?
Responsible Investment at Varma | Pirta Wentzel10
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
Responsible Investment at Varma | Pirta Wentzel11
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%
Responsible Investment at Varma | Pirta Wentzel12
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
Responsible Investment at Varma | Pirta Wentzel13
3 sectors with the highest CO2 emissions
Energy
Materials
Utilities
Other sectors
Responsible Investment at Varma | Pirta Wentzel14
varma.fi > about Varma > financial information and investments > responsible investment
Varma’s responsible investment principles and practices are published online
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
Building Varma’s sustainable
development equity portfolio
Building Varma's sustainable development equity portfolio | Hanna Kaskela22
Hanna Kaskela
How is a sustainable company defined?
Building Varma's sustainable development equity portfolio | Hanna Kaskela23
Building Varma's sustainable development equity portfolio | Hanna Kaskela24
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?
Building Varma's sustainable development equity portfolio | Hanna Kaskela25
Building Varma's sustainable development equity portfolio | Hanna Kaskela26
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.
Building Varma's sustainable development equity portfolio | Hanna Kaskela28
Responsibility in Varma’s hedge
investments
Building Varma's sustainable development equity portfolio | Hanna Kaskela29
Distribution of Varma's investments
Building Varma's sustainable development equity portfolio | Hanna Kaskela30
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.
Building Varma's sustainable development equity portfolio | Hanna Kaskela31
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
Building Varma's sustainable development equity portfolio | Hanna Kaskela33