Finnish pensions insurer Varma has invested €500m in a new US exchange-traded fund (ETF) it developed in conjunction with Legal & General Investment Management (LGIM) and the index investment company Foxberry.
The tracker instrument takes sustainability criteria broadly into account, the €47bn earnings-related pension provider said, keeping out tobacco, controversial weapons firms and those relying on coal business, as well as those with the highest emissions and significant fossil fuel reserves.
Varma’s move to get involved in the creation of the ETF in which it would invest follows its €200m investment in September in the London-listed ETF L&G Europe Equity (Responsible Exclusions) fund it helped develop with the same two partners.
Timo Sallinen, senior vice president, investments, at Varma, said: “Sustainability is integrated into Varma’s investment operations, and we also want to actively develop sustainable investment options.
“As the responsible investment sector grows, the development of index funds with an increasingly responsible tilt is key, and they are precisely where change is needed,” he said.
The LGIM US Sustainability ETF was listed on the London Stock Exchange on 10 December.
The fund tracks the new Foxberry Sustainability Consensus US Total Return Index, whose exclusion methodology is determined by a sustainability committee, which includes both LGIM and Varma.
Using the committee’s expertise was an attempt to “future-proof” the index, by being able to react to emerging issues, Foxberry said.
Apart from firms doing business in certain sectors, the index also excludes companies that have breached international agreements and standards, for example concerning respect for human rights and the use of child labour, Varma said.
As well as this, companies selected as investees are assessed on how well they take environmental, social and governance (ESG) issues into account in their operations, the pensions insurer said.
Sallinen said alternatives were needed for exclusion-based products.
“We believe that co-operation between stakeholders goes a long way in promoting responsible investment,” he said.
One of Varma’s main goals with this new product, he said, was to reduce the carbon emissions of its investment portfolio.
Ilmarinen, Finland’s largest pension insurance company, has also been involved in developing its own ESG ETFs, having cooperated with BlackRock and iShares earlier this year.
Shift away from coal
Separately, Varma announced today that it has joined a group supporting the shift away from coal power generation, saying people had to work together if greenhouse gas emissions were to be reduced.
The pension insurer said it was the first Finnish company to join the Powering Past Coal Alliance (PPCA), which now has 97 members including national and sub-national governments, organisations and businesses.
The alliance is working to phase out coal-based electricity and heat generation in the EU and OECD countries by 2030, and worldwide by 2050, which is required to keep global warming below 2℃ compared to pre-industrial levels, Varma said.
Hanna Kaskela, Varma’s director of responsible investment, said: “Varma has ambitious climate targets, and as a large investor we believe it is also our duty to promote a reduction in greenhouse gas emissions and a transition to clean energy. This requires collaboration and a just transition.”
Investors in the PPCA commit to extending no finance for new unabated coal projects, and investments in existing coal-fired power plants are also not possible if they would result in their operation beyond the PPCA timeframes.
The alliance’s members also pledge to avoid exposure to investments and investment products that enable coal combustion beyond these timeframes.