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Ilmarinen starts linking portfolio managers’ incentives to sustainability

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Ilmarinen, Finland’s second-largest pensions insurance company, says it is adopting sustainability benchmark indices in it investment operations on a “broad scale” and with the move aims to be a leader in responsible investment.

Under the new approach, stock choices will be compared with the indices – based on sustainability ratings produced by MSCI – which Ilmarinen says include the most responsible companies in each sector and geographical area.

Mikko Mursula, Ilmarinen’s CIO, said: “The performance of the portfolio managers will be compared against the benchmark index, and their incentives will be tied to it.”

By adopting the new benchmark indices, Ilmarinen is taking sustainability a step further in its investment operations, he said.

“With the new benchmark indices, we wish to encourage our portfolio managers to place even greater emphasis on sustainable companies in their investment decisions,” Mursula said.

Ilmarinen said it also had its own sustainability ratings, which it has integrated into its investment decision making.

He said the pension fund would still be able to invest in companies outside the ESG index when they have a high enough sustainability rating.

“Now the benchmark indices are also more in line with our own sustainability ratings and our criteria for responsible investments,” Mursula said.

Ilmarinen emphasised that responsible investment was part of risk management and did not mean compromising on return targets.

“A sustainable company also has access to better financing opportunities, which contributes to making it a profitable investment,” Mursula said.

“A company that operates sustainably is a better investment in the long run, and, by investing responsibly, we will secure the best possible return for Finnish pensioners.”

The company, which provides earnings-related pensions, said that, by adopting the new benchmarks, it aimed to be “a forerunner in responsible investments”.

Mursula described the benchmark indices as a logical step for Ilmarinen after adopting sustainability ratings in 2015.

“Many investors have already implemented indices and funds that focus on sustainability, which is a very good thing,” he said.

“However, it is still quite rare for institutional investors to use ESG benchmark indices on this scale.”

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