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Finnish pension insurer targets carbon-neutrality by 2035

Varma Mutual Pension Insurance Company has strengthened its climate targets, as is looking to seize the investment opportunities arising from the low-carbon transition.

“We believe that carbon-efficient companies who are reducing their emissions are in the best position to succeed, which is why we are revising our targets to reduce the carbon intensity of our investments,” its November climate policy said.

Varma, which manages assets worth €47.4bn, already committed to align its investment portfolio with the Paris Agreement in 2016.

Its updated climate policy aims at achieving a carbon neutral portfolio no later than 2035.

Climate opportunities

Varma is seeking to achieve carbon neutrality by investing in transitioning companies, which produce solutions to emission reductions; by fostering collaborations regarding climate change mitigation and adaptation; and by focusing on analysing financial risks of climate change.

Specifically, its policy will identify “new investment opportunities” resulting from climate change.

It has defined them as businesses and operations which:

  • benefit from actions to mitigate climate change
  • do not cause significant greenhouse gas emissions
  • have a clear strategic and science-based target to reduce greenhouse gas emissions
  • offer carbon sinks

Varma is targeting that at least 20% of its portfolio will be invested in such opportunities by 2025, while increasing the share of low-carbon index funds to 35% of its index investments.

In active equity funds, it wants to invest only in low-carbon and sustainable development investment strategies, while also increasing its share of such strategies in its active fixed income funds; aligned with market and fund growth and investing in green bonds, the policy stated.

Divestments

In its divestment policy, Varma has committed to exiting from thermal coal investments by 2025 and excluding oil exploration by 2030.

“Our goal is to have the companies that we engage on decommissioning their coal plants by 2030. We see no future for coal-based electricity generation,” said Varma’s director of responsible investment, Hanna Kaskela.

The firm’s emission reduction analysis is based on the Science Based Targets initiative, which aims at making science-based target setting a standard business practice by 2020, and the Task Force on Climate-related Financial Disclosures (TCFD) framework, a reporting framework used by companies and investors.

It has identified industries that offer both the greatest opportunities for emission reductions through their business and are also significantly exposed to risks, including regulation and market risks.

They are:

  • oil & gas
  • utilities
  • automobiles
  • metals & mining
  • construction materials
  • transportation
  • chemicals

Varma’s chief investment officer Reima Rytsölä explained that the renewed climate policy was also due to an increased understanding about climate change.

“Over the past year, it has become clear that emissions must be cut much faster than previously thought in order to keep global warming within the two-degree limit,” he said.

Varma will update its climate targets at least every three years.

Elena Johansson

Senior Reporter

Part of the Bonhill Group.