Varma is renewing its climate targets: Carbon-neutral portfolio by 2035, accelerated decommissioning of coal-fired power plants, oil exploration to be excluded

“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. New information about climate change and its impacts has come to light, which means we must also renew our climate targets,” states Varma’s CIO Reima Rytsölä.

Varma aims for a climate-neutral investment portfolio by 2035. This also requires changes in the investment environment to make carbon neutrality possible. Varma invests in companies that enable emissions reductions and adaptation to the changes brought by global warming. Varma is committed to promoting collaboration within the financial markets and participating in international joint initiatives to mitigate climate change.

Varma’s goal is that by 2025, one fifth of the investment portfolio will consist of investees that either directly or indirectly mitigate the advancement of climate change. This means focussing on companies and investees that have low emissions, provide solutions for reducing emissions, promote the use of renewable energy or offer carbon sinks.

“Mitigating climate change requires investors to operate in a way that leads to a reduction in the use of fossil fuels. We believe that carbon-efficient companies who are reducing their emissions also have the best chance of success,” says Rytsölä.

Exit from investments in thermal coal in equities by 2025

Varma’s renewed climate targets cover all asset classes. In equities and corporate bonds, the proportion of greenhouse gas emissions in relation to revenue will be cut gradually. The objective is to reduce emissions by 50% by 2027 from the 2016 level.

In industries that are significantly exposed to climate related risks, such as oil & gas, utilities, automobiles, metals & mining, construction materials, transportation and chemicals, Varma focusses its investments on companies that offer alternatives to the use of fossil-based energy and raw materials.

In equity investments, oil exploration will be excluded by 2030, and Varma is committed to exiting from investments in thermal coal even before then, by 2025. Investees can also be placed under enhanced monitoring due to their exposure to climate related risks, in which case Varma will engage with these companies in an effort to accelerate the decommissioning of coal-based operations.

“Our goal is to have the companies that we engage with decommission their coal plants by 2030. We see no future for coal-based electricity generation,” says Varma’s Director of Responsible Investment," Hanna Kaskela.

Fossil-free heating and electricity in properties

In real estate investments, Varma’s climate goal is to reduce the carbon dioxide emissions of our direct real estate investments by switching to fossil-free heating and electricity by 2030 and 2025 respectively. BREEAM environmental certification will be sought for all of Varma’s significant properties by 2025.

In fund investments, Varma steers away from investees that are exposed to the risks brought by climate change and which generate emissions, and invests in companies that develop solutions to mitigate climate change. In private equity funds, the share of renewables will increase to 50% of electricity generation investments by 2030. In index funds, the share of low-carbon funds will increase to 35% by 2025.

“We pay close attention to our choice of funds and fund managers. Together with other investors, our goal is to engage with fund managers to encourage them to take climate perspectives into account in their operations as part of responsible investment,” stresses Kaskela.

Varma released its Climate Policy for Investments in 2016, at which time the company had already committed to align its investment portfolio with the Paris agreement. According to the new Climate Policy for Investments, Varma will update its climate targets at least every three years.

Varma Mutual Pension Insurance Company is a responsible and solvent investor. The company is responsible for the statutory earnings-related pension cover of some 900,000 people in the private sector. Premiums written totalled EUR 5.1 billion in 2018 and pension payments stood at EUR 5.7 billion. Varma’s investment portfolio amounted to EUR 47.4 billion at the end of September 2019.