VER is best placed to wield influence over the operations of companies as a shareholder. Aside from equities, direct investments include bonds. With these securities, the opportunities for exercising influence differ from those offered by shares. Nor can ESG criteria be applied to government bonds, meaning that they are not assessed in terms of responsible investing.
Portfolio managers consider ESG issues as part of the overall evaluation of the prospective investment before making the decision. As VER is a major investor, its portfolio managers are in a position to approach company management directly to inquire about these issues.
With direct investments in equities and bonds, VER expects the portfolio companies to have in place an ESG policy and comply with the international standards based on the UN Global Compact principles. VER monitors the carbon footprint of the companies in its portfolio and seeks to reduce its footprint in the future. This can be accomplished by selecting ‘the best in the industry’ companies in the portfolio or reducing the weight of industries generating large carbon dioxide emissions.
As a rule, VER’s representatives attend the shareholder meetings of the key listed Finnish companies in its portfolio and exercise voting rights on VER’s behalf. VER’s representatives serving on the boards of non-listed companies are best placed to have a say in corporate affairs, including ESG issues.
VER’s portfolio managers monitor and discuss ESG issues at meetings with the portfolio companies even after the investment is made. If the company fails to meet the ESG standards applied by VER or if its performance raises questions, VER initiates talks with the company or takes other action to influence its behaviour. The primary objective is to improve ESG performance, normally a better alternative than exit, both in terms of promoting responsible action and earning a better return on the investment.
The last option available to VER is divestment if the portfolio company fails to meet VER’s ESG criteria.