Finland’s Varma announced it has “dramatically” reduced its proportion of fossil-fuel investments in the last five years with an eye to meeting its climate goal, and built an allocation of investments set to benefit from climate mitigation up to 12.4% of its €50.2bn portfolio.
The firm, one of Finland’s two largest pension insurers, said in a release on the topic this morning: “Varma has dramatically cut the share of fossil fuels in its investments in order to achieve a carbon-neutral investment portfolio by 2035.”
Varma told IPE said this large reduction had taken place between 2015 and the end of last year, but declined to disclose the actual size of the cut.
As part of its climate goals, Varma said it was committed to exiting from investments in thermal coal by 2025 and excluding oil exploration by 2030.
The Helsinki-based pension provider said it had now divested coal mines, coal-fired power generation and oil exploration companies, and had plans for more divestments in this area, but added that it was also engaging with some companies to persuade them to decommission coal power plants by 2030 at the latest.
Hanna Kaskela, head of responsible investments at Varma, said: “Otherwise, we will exit the investment. We see no future for coal-based electricity generation.”
The pension insurer, alongside Ilmarinen one of the mainstays of Finland’s private sector earnings-related pension system, said that these latest coal and oil exclusions were from its direct investments, such as equities and corporate bonds.
As far as its investments via equity funds were concerned, Varma said, it only invested in low-carbon funds.
At the end of 2020, the pension provider said, shares in oil drilling firms accounted for just 0.5% of its direct equity investments and exchange-traded funds, while 1.6% remained invested in companies that relied on coal for over 5% of their operations.
Varma said the climate allocation it had been building up, which included companies whose business benefited from climate change mitigation and had clear emission reduction targets, accounted for 12.4% of its entire investment portfolio at the end of 2020.
The allocation, which Varma aims to grow to 20% by 2025, includes investments such as renewable energy and real estate, the firm said.
VER reports 4% 2020 return, transfers €1.9bn to government budget
The State Pension Fund of Finland (VER) made a total investment return of 4% for 2020, down 13.8% the year before, with infrastructure funds and unlisted equity performing the best.
The pension fund – a buffer for national government pensions — said in its full-year results announcement yesterday that its average nominal return over the last five years had been 5.4%.
Timo Löyttyniemi, VER’s chief executive officer, said: “What matters is long-term return. VER’s real returns have remained sound for a long period of time, which has clearly consolidated the financial base for future pensions.”
Total assets under management rose to €21bn by the end of 2020 from €20.6bn at the end of 2019, the pension fund reported, with fixed income instruments accounting for 36.2% and equities for 52.4% of the total.
The smaller asset classes of unlisted equities and infrastructure funds performed the best last year, VER said, generating returns of 12.2% each, while private equity funds returned 6.6%, listed equities produced a 6.2% return and liquid fixed income instruments made a 2.1% gain in the year.
VER said it had received around €1.5bn in pension contribution income and transferred approximately €1.9bn to the government budget in 2020.
Elo posts 3.6% return after ‘remarkable’ increase in solvency
Elo, the third-largest of the four Finnish pension insurance companies, has posted a 3.6% return on investments for 2020, down from 13.0% the year before.
In its preliminary financial statement for last year, the firm said the market value of investments rose to €25.9bn during 2020 from €25.3bn.
Satu Huber, Elo’s CIO, said: “Despite the unexpected downturn of the market due to the coronavirus pandemic, Elo’s solvency has shown a remarkable increase and the solvency capital nearly reached the level of last year.”
The solvency ratio ended the year at 123.7% compared to 124.4% at the end of 2019.
Elo’s management is currently under close scrutiny by the Finnish FSA (Finanssivalvonta, FIN-FSA), with the watchdog having sent a representative in to monitor the company following a one-day breach of the solvency limit in March 2020.