Finland’s Varma licenses new ‘TCFD-aligned’ climate index incorporating CDP methodology

Finland’s largest private investor ramps up sustainability push

The Varma Mutual Pension Insurance Company, whose €42.9bn of assets make it the largest private investor in Finland, has licensed a new climate change index from index provider STOXX that also excludes controversial weapons and tobacco.

It’s part of a new index series that STOXX says is a first because it incorporates methodology of the CDP climate data body and aligns it with the Financial Stability Board’s high-level Task Force on Climate-related Financial Disclosures.

Varma, which made a 4.7% return on investments in 2016, has licensed the STOXX Global Climate Impact ex Global Compact, Controversial Weapons, which is one of a new family unveiled today by the Zurich-based firm that is owned by the Deutsche Boerse exchange.

STOXX says the new STOXX Climate Impact and STOXX Climate Awareness Indices incorporate the CDP climate change scoring methodology which evaluates companies based on their progress in the transition towards a low carbon economy.

“Climate change is one of the most significant factors that investors must prepare for in the long term,” said Reima Rytsölä, Varma’s chief investment officer. “We are committed to developing our investment operations so that our investments and investment processes comply with the 2-degree target.”

It comes as Varma last week said that it would switch to using renewable electrical energy in all of its rental residential properties by 2019, with more solar panels being installed on the roofs of business premises. Its goal is to reduce the carbon footprint of real estate investments by 20% by 2025.The investor says switching to green real estate electricity is a “concrete step” towards cutting the carbon footprint of its real estate investments. “As one of Finland’s largest real estate investors, Varma’s actions make a difference,” it said.

The data for the Global Compact and Controversial Weapons exclusions is provided by Sustainalytics.

“Climate change is one of the most significant factors for investors”

Varma said last month that the carbon footprint of its corporate bond portfolio fell by a quarter last year, while its equity holdings saw a 22% drop in carbon intensity – putting it 36% lower than its benchmark.

Fellow Finnish investor Ilmarinen is also putting a greater emphasis on sustainable growth, setting itself a target that 12% of its equity portfolio’s net sales stem from sustainable solutions by 2020.

STOXX CEO Matteo Andreetto said the new indices’ taking into account the forward-looking data used in the CDP methodology, focusing on companies’ climate-related financial disclosures in areas like governance, strategy, risk management, targets and opportunities, is “in line with the recommendations of the Task Force on Climate-related Financial Disclosures”.

“By contrast, the low carbon indices available in the market so far are solely based on historical carbon footprint data.”

The firm said the new indices build on the STOXX Global Climate Change Leaders Index that was based on the CDP A-List. They include the first three levels of the CDP climate change scoring methodology: Leadership, Management and Awareness. Link