Varma prepares to exclude intermediaries that fund fossil-based energy – the goal is to push the transition to climate-sustainable forms of energy forward
Varma Pension Insurance Company is starting to monitor more closely the amount of financing that banks acting as its investment brokers provide to companies that rely on coal and oil in their operations. Through monitoring and possibly negative screening, Varma’s objective is to persuade banks to stop financing polluting forms of energy.
Brokers are international banks that manage purchases and sales related to Varma’s investments, for instance stock trading, based on orders.
“Criticism has come out of the United Nations Climate Change Conference in Egypt that countries around the world are still pumping more money into fossil energy than combating the climate crisis. By curbing the financing of coal power, we aim to increase the attractiveness of climate-friendly forms of energy, such as wind and solar power, compared to fossil-based energy,” says Varma’s Sustainability Director, Hanna Kaskela.
Varma’s intention is that, as a result of this engagement, banks will be more reluctant to grant loans to coal-reliant companies or help them strengthen their financing with new bonds.
“This new means of engagement is aligned with our Sustainability Programme, and with our climate targets, which were updated in June. We have outlined that in addition to our own climate targets, we will start demanding more ambitious climate actions from our co-operation partners. We are also developing our value chain, meaning we will require sustainability from the partners we buy services from,” says Kaskela.
Fossil-fuel backers will be blacklisted
Financing will be monitored using an analysis that shows how much a bank receives in commissions for financing fossil-based fuel production and how that share compares to the financing given to other companies.
“There is data available in the market that enables us to track the commissions that banks acting as brokers receive from, for instance, financing coal-based business. Companies that significantly fund fossil-fuel production will be placed on an observation list. Varma’s portfolio manager is responsible for informing our intermediaries about our climate policy, and if a blacklisted company does not change its ways, we will no longer trade with that party,” stresses Vesa Syrjäläinen, Development Manager, Responsible Investment.
Varma’s main goal is to try to engage with intermediaries to promote climate actions. Possible negative screening is carried out in compliance with Varma’s principles for responsible investment, which also apply to investee companies. In terms of negative screening, the requirements set for investments were tightened in June, and Varma does not make new investments in companies with coal-based operations accounting for more than 10% of their revenue.
“Our goal is to make it more difficult to obtain financing for coal-based power. If other investors were to do the same on a grand scale, banks would be under pressure to change their ways. If financing for fossil-based energy generation becomes more difficult, costs will increase and opening new facilities will becomes less profitable,” states Syrjäläinen.
Long-term development of Varma’s own climate efforts
Varma renewed its climate policy in June. Varma’s goal is to reduce the investment portfolio’s absolute emissions by 25 per cent by 2025 and 50 per cent by 2030 compared to the level at the end of 2021.
The longer-term climate target is to achieve a carbon-neutral investment portfolio by 2035.
In October, Varma committed to align the emission targets concerning its own operations with the Science Based Targets initiative (SBTi), which has become a forerunner in science-based, private-sector climate work.
Vastuullinen sijoittaminen ja vastuullisuus
Varman tulos, sijoitukset ja kiinteistöt
Varma Mutual Pension Insurance Company is a responsible and solvent investor of pension funds. The company is responsible for the statutory earnings-related pension cover of 945,000 people in the private sector. Premiums written totalled EUR 5.6 billion in 2021 and pension payments stood at EUR 6.2 billion. Varma’s investment portfolio amounted to EUR 56.4 billion at the end of September 2022.
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