Ilmarinen adopts new climate benchmarks

Ilmarinen's goal is for its investment portfolio to be carbon neutral by the end of 2035.

"In other words, we aim to ensure that the climate emissions produced by our investments and the greenhouse gases removed from the atmosphere by our operations, i.e., carbon sinks, are in balance, i.e. the net climate emissions are zero," Mursula says.

Until now, portfolio managers have used several ESG benchmark indices for internally managed listed equity assets. They are broad sustainability indices that take into account key aspects of responsibility: the environment, social aspects and good governance.

In December, Ilmarinen changed the benchmark index from the ESG index to the MSCI Climate Action index that has more focus on climate performance.

The portfolio managers will now use the new index as performance benchmark for internally managed assets. The change will affect performance benchmarks within listed equity investments of approximately of EUR 17 billion.

"We continuously develop our approaches and we needed an index that guides us better towards out climate targets,” says Mikko Mursula.

There are a lot of climate indices, but often the carbon reduction is the result of significantly reducing investments in high-emission sectors.

"That's not enough for us. The only way to reduce climate risks is to bring about changes in the real economy. That is why we want to promote real emission reductions by also investing in companies operating in higher-emission industries that are making the transition to a low-carbon economy. The transition of such companies is necessary for the entire global economy to be able to move away from fossil fuels," says Karoliina Lindroos, Head of Responsible Investment.

Ilmarinen involved in developing the index

MSCI Inc. (NYSE: MSCI), a leading provider of critical decision support tools and services for the global investment community, offers an extensive range of ESG and Climate indexes that enable investors to integrate climate considerations into global and regional equity market portfolios. The MSCI Climate Action indexes have been developed to consist of companies that are taking measurable steps to tackle their emissions, selecting from across the economy using the 11 Global Industry Classification Standard (GICS) sectors.

The index methodology ranks companies in each sector based upon climate criteria. The criteria are based upon an assessment of companies’ net-zero target setting and climate risk management, and on this basis, the index selects the top half of companies in each GICS sector.

“We have been involved in developing an index that aims to reduce the risks to the value of investments caused by climate change and to benefit from the opportunities arising from the fight against climate change,” says Senior Portfolio Manager Juha Venäläinen.

Axel Kilian, Head of Client Coverage EMEA, MSCI, says, “The MSCI Climate Action Indexes have been created for investors aiming to gain exposure to the companies that are making meaningful progress towards net zero in the real economy and therefore are addressing the systemic risks of climate change. We are pleased to have worked with Ilmarinen to give them the tools to develop portfolios that are pursuing their net zero commitments, integrate climate considerations and fulfil their investment objectives.”

Sustainability index also for fixed income investments

For corporate bonds (Investment Grade), the ESG benchmark index was also introduced.

"For us at this stage, the best solution is the ESG index, which also steers the carbon footprint in a better direction. In fixed income investments, ESG indices have a shorter history than equity investments. We are actively monitoring the development of the indices and are ready to move to the climate index once a product similar to equity investments has been launched," says Kari Eerola, Head of Fixed Income.

ENDS