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Finland’s Ilmarinen introduces new sustainability benchmark across equity portfolio

Staff incentives will be tied to new benchmarks, based on MSCI sustainability ratings

Finland’s €36.5bn Ilmarinen has introduced new sustainability benchmarks for its equity portfolio, linking staff incentives to the indices based on sustainability ratings designed by MSCI.

The mutual pension insurer began using the new benchmarks in January, Tiina Landau, senior advisor, responsible investment, told Responsible Investor, and said the new benchmarks had been rolled out as widely as possible across Ilmarinen’s €11bn in listed equity holdings.

“But where it hasn’t been applied is across Finnish investments, where it is only one market and there is no sustainability benchmark available,” she said.

Landau added that certain externally managed investments had also been excluded from the exercise, as not all managers applied a similar ESG benchmark. “Comparing performance against another index than the portfolio manager is using may give an inaccurate view about the skills of the portfolio manager,” she said.

However, the benchmarks nonetheless applied to €5.6bn in assets.

Ilmarinen’s CIO, Mikko Mursula, noted that portfolio managers’ performance would now be measured against the new benchmarks, and that staff incentives would be tied to them.

“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.The benchmarks are based on sustainability ratings designed by MSCI, which the provider has been using since 2015 to score companies on a number of environmental, social and governance (ESG) criteria.

“We wish to encourage our portfolio managers to place greater emphasis on sustainability”

The index includes best in class firms, and represents around half of the market value of each parent index. Additionally, companies producing tobacco, controversial weapons, or in breach of international treaties are automatically excluded from the provider’s investment universe.

However, the new approach does not preclude Ilmarinen from investing in companies outside its index, as long as the firms achieve a sufficiently high sustainability rating, or they pass muster following a further examination by Landau, and are approved by her and the relevant portfolio manager.

Mursula argued strongly in favour of improving the sustainability of Ilarinen’s portfolio.

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

His comments reflect the pension mutual’s aim of increasing its exposure to sustainable growth by doubling to 12% the net sales stemming from sustainable activities.