Sustainability-related themes dominate active ownership efforts.
Varma Mutual Pension Insurance’s investment portfolio is on target to be carbon neutral by 2035, following the Helsinki-based firm’s latest annual results, which featured record returns and declining greenhouse gas emissions.
As of year-end 2021, the asset owner has achieved its 2016 30% decarbonisation target for equity investments, according to Varma’s financial statement. Further, emissions across listed corporate bonds have decreased by 23% compared to 2016 levels, and real estate investment emissions have been cut by 57% compared to 2015 levels.
Following the finalisation of the EU Taxonomy Regulation’s Article 8 Delegated Act, Varma has disclosed that 66% of its direct listed equity investments are now estimated to be “taxonomy-eligible”.
Positive sustainability-related progress has bolstered the asset owner’s financial performance for the year, generating a 18.5% (€9.3 billion) increase on investment returns, pushing overall investment value to €59 billion.
President and CEO Risto Murto partly attributed “unprecedented” returns to a “classic upswing” as economies began to emerge from the pandemic.
Varma has further achieved some its climate targets ahead of schedule. Forty-one percent of external index investments are now classified as low-carbon, the statement said, noting that the original goal set in 2019 was for 35% of index investments to be low-carbon by 2025.
“We have focused on low-emission investments,” Varma noted.
Climate-positive allocations accounted for 18.2% of Varma’s total investment portfolio in 2021, the statement said, compared to 12.4% the previous year.
“The growth is especially due to the rapid increase in companies’ commitment to ambitious emission reduction targets,” Varma said.
Last year, the pension insurance company invested €230 million in State Street Global Advisors’ Sustainable Climate Corporate Bond funds, which invest in European and US corporate bonds to help investors achieve a reduction in their exposure to carbon emissions while supporting the transition to a low-carbon economy.
Sustainability-related themes were prioritised during the pension and insurance firm’s 2021 corporate engagements and voting, according to a separate 2021 report.
Throughout the course of the year, Varma participated in the annual general meetings (AGMs) of 87 Finnish companies and 162 international companies, primarily voting at the AGMs of companies with holdings exceeding 0.5% of their portfolios.
“Additionally, we voted at the AGMs of those global companies that are included in our sustainable equity portfolio,” the Finnish asset owner said, adding that it voted in favour of shareholder proposals advocating for reporting on climate-related risks.
Of its direct equity and bond investments, Varma engaged with four companies on social-related issues, such as “the realisation of human rights or labour rights”.
The key focus areas of sustainability-related engagements last year included work ability and good working life, mitigating climate change, and ethical business.
“Varma’s financial situation and solvency position continued to strengthen in 2021. Strong solvency provides protection and leeway for making investment allocation decisions also going forward,” the report said.