Responsible Investing

VER’s mission, as defined by law, is to invest pension assets prudently and generate returns.  Underlying the investment decisions are the returns expected of the Fund and the return potential of the investees, with due regard to the risk levels. VER’s operations are governed by its shareholder control policy and the principles of responsible investing adopted by its Board of Directors that set out VER’s objectives and business practices, such as exclusion criteria and the exercise of control in VER-owned companies. VER’s principles of responsible investing were last updated in 2021.

VER’s investment concept presupposes that sustainable investing reduces the impact of the negative externalities of VER’s investments on the natural and social environment in the long run.

Sustainabiliy management 

VER’s sustainability performance is reported to the Board of Directors on a regular basis, and the management team addresses sustainability issues as appropriate. As far as asset managers are concerned, VER evaluates their performance in complying with the sustainability criteria. Sustainability performance is regularly assessed by the Risk Management Committee and action is taken when necessary.

Sustainability and strategy

VER’s principles of responsible investing apply to direct and fund investments, and the investment decisions are governed by ethical considerations and ESG criteria. VER is aware that compliance with the principles may be challenging with certain investment instruments. With regard to decisions on new investments, compliance with the guiding principles is ensured during the course of preparations. Existing investments are monitored and, if necessary, influence is exercised in the portfolio companies to improve performance. As a last resort, VER may dispose of the investment.

To ensure compliance with VER’s responsible investing principles, ESG criteria are integrated into the decision-making process while certain sectors are completely excluded.  ESG stands for Environment (E), Social (S) and Governance (G). Effective responsible investing calls for the integration of ESG information into the investment processes and decisions. VER is making determined efforts to improve the integration of ESG considerations and related practices both in respect of the assets that VER manages itself and the assets whose management is outsourced.

At VER, the exclusion of specific sectors is based on an ethnical analysis and exposure to climate change. The revenue percentage applied by VER for excluding certain lines of business is 10% for coal and lignite and 25% for ethical reasons. VER complies with said revenue limits when investing in fixed-income and equity instruments in the following sectors:

  • Tobacco companies
  • Arms manufacturers
  • Drugs, excluding medical use, distribution and manufacturing
  • Adult entertainment companies
  • Gambling companies
  • Coal and lignite

Additionally, VER has identified industries with an elevated need for ESG monitoring:

  • Industries with a significant exposure to climate risks, such as oil and gas, power and heat generation, automotive, mining, concrete and transportation industries
  • Alcohol

 
Risk management

The long time span of VER’s key mission and the need for future returns require an understanding of the long-term risks and opportunities associated with investment decisions. Hence, VER perceives sustainability as being part of overall risk management. A careful assessment of environmental, social and governance (ESG) issues in making investment decisions reduces risks and creates new investment opportunities. In VER's view, managing sustainability risks is of great importance, and VER recognises the impact of climate change on the environment and the economy in the coming decades. Key priorities in VER’s approach are the climate risk and the carbon footprint of its investments, which is specifically monitored by watching the carbon intensity indicator of the portfolio. At the same time, VER monitors its own carbon footprint relative to the benchmark index. VER actively assess its carbon risk and the measures it calls for.

VER ensures, for its own part, that VER-owned companies are duly prepared for ESG-related risks and opportunities. VER has commissioned third-party service providers to report on the ESG performance of the individual portfolios and any regulatory infractions as well as carry out screening related to controversial weapons. In particular, VER wishes to increase the percentage of investees with a positive environmental impact and renewable energy generation in its investment portfolio. As the accounting mechanisms for products and services with a positive environmental impact continue to evolve, VER seeks to ensure that quantifiable targets can be set for these investments in the future.

Exercise of influence

VER exercises influence through shareholder control and cooperation. VER has adopted specific principles for shareholder control designed to promote its objectives in companies in which VER holds significant interests and in which it perceives real opportunities for exercising influence. VER’s portfolio managers monitor the operations of the portfolio companies and seek to contribute to the attainment of the objectives established for VER-owned companies. VER’s primary tool for exercising influence is to discuss policies with its portfolio companies. VER’s portfolio managers meet members of corporate management regularly and engage in an active dialogue concerning sustainability and other topical issues.

VER signed the United Nations Principles for Responsible Investment (UNPRI) in 2011. Additionally, VER is involved in the Carbon Disclosure Project (CDP) and a member of Finsif, Finland's Sustainable Investment Forum.  Under the UNPRI scheme, the signatories are required to report on their activities annually.

Carbon footprint of VER's portfolio

Carbon footprint of VER’s portfolio

Allocation

Portfolio's carbon intensity

Portfolio's emissions

Market value of portfolio

%

Coverage (Scope 1 and 2)

Weighted average carbon intensity
(TCFD)
 

Coverage (Scope 1 and 2)

Carbon footprint

Total
carbon emissions
tCO2e

Listed equities

9 844

41,8 %

96,4%

158

96,2%

96

      944 995  

Corporate loans

2 076

8,8 %

71,9%

84

58,0%

44

          91 353  

VER’s objective is to reduce the carbon intensity of its entire equity portfolio by 10% by the end of 2023 relative to the 2020 level. VER seeks to keep the carbon intensity of its corporate loans under the benchmark index. Every effort is made to press the carbon intensity of the entire portfolio of listed equities close to or below the benchmark index.

To reduce the greenhouse gas emissions of its portfolio, VER employs two approaches. VER believes that its portfolio companies will strive to achieve net zero emissions by a given year. Assuming that their objectives are achieved within the foreseen timeframe, it may be expected that the emissions of VER's portfolio will decrease significantly. Additionally, VER focuses on investees that establish more ambitious emission reduction targets and take more determined action than their peers. As a result of this policy, VER will arguably achieve the target level for the entire portfolio more quickly than by relying purely on index-based investing.

In VER's view, the emissions generated by its corporate investees and the government emissions calculations are not directly comparable, and it is therefore difficult, at this stage, to set an overall target for carbon neutrality and its timeframe with regard to VER's entire portfolio. VER will monitor the target timetables of conventional index-based investees for attaining net zero emissions and seek to achieve the zero level faster than that would be attainable through investments based on extensive benchmark indexes.

VER's board of directors has adopted the principles of responsible investing

VER's climate report 2021