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Valtion Eläkerahasto

PRI reporting framework 2017

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You are in Direct - Listed Equity Incorporation » ESG incorporation in actively managed listed equities

ESG incorporation in actively managed listed equities

Implementation processes

LEI 03. Percentage of each incorporation strategy

New selection options have been added to this indicator. Please review your prefilled responses carefully.

03.1. Indicate (1) which ESG incorporation strategy and/or combination of strategies you apply to your actively managed listed equities and (2) the breakdown of your actively managed listed equities by strategy or combination of strategies (+/- 5%)

ESG incorporation strategy (select all that apply)

Percentage of active listed equity to which the strategy is applied
100 %
Total actively managed listed equities 100%

03.2. Describe your organisation’s approach to incorporation and the reasons for choosing the particular ESG incorporation strategy/strategies.

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.

03.3. Where assets are managed using a combination of ESG incorporation strategies, briefly describe how these combinations are used. [Optional]


LEI 04. Type of ESG information used in investment decision

04.1. Indicate what ESG information you use in your ESG incorporation strategies and who provides this information.

Type of ESG information

Indicate who provides this information  

Indicate who provides this information 

Indicate who provides this information 

04.2. Provide a brief description of the ESG information used, highlighting any differences of sources of information across your ESG incorporation strategies.

04.3. Indicate if you incentivise brokers to provide ESG research.

04.5. Additional information.[Optional]


LEI 05. Information from engagement and/or voting used in investment decision-making

05.1. Indicate if your organisation has a process through which information derived from ESG engagement and/or (proxy) voting activities is made available for use in investment decision-making.

05.2. Additional information. [Optional]


(A) Implementation: Screening

LEI 06. Types of screening applied

06.1. Indicate and describe the type of screening you apply to your internally managed active listed equities.

Type of screening

Screened by

Description

VER's ESG criteria

In its investment activities, VER focuses on ESG criteria that are consistent with its investment objectives and in respect of which VER is in a position to implement and monitor the criteria, given the resources available. Key criteria:

Respect for the PRI and promotion of ESG goals;
Respect for universal international standards; 
Transparency of ESG issues in all asset classes.

Implementation of responsible investing

The methods used in responsible investing may vary in terms of the adopted approach because there is no universally applicable definition of ESG in the investment industry; instead, each player perceives it differently placing the emphasis on different priorities. The methods used by VER to pursue responsible investing are governed by the following considerations with due allowance for the asset class involved: 

Integration of ESG issues in the decision-making process;
Direct monitoring of ESG performance – active ownership; 
Indirect monitoring of ESG performance – passive ownership;
Active participation in meetings of shareholders;
Exercise of influence;
Compliance monitoring;
Exits.

Screened by

          Controversial weapons and CO2 emissions in our portfolio.
        

Description

VER’s portfolio managers document the ESG issues related to investment decisions and monitoring in accordance with standing instructions.The ESG compliance of VER’s direct investments is assessed annually by an independent party with regard to norm violations and production of controversial weapons.[1] 

[1] Global Compact and Ottawa Landmine Convention.

06.2. Describe how the screening criteria are established, how often the criteria are reviewed and how you notify clients and/or beneficiaries when changes are made.

Implementation of responsible investing

The methods used in responsible investing may vary in terms of the adopted approach because there is no universally applicable definition of ESG in the investment industry; instead, each player perceives it differently placing the emphasis on different priorities. The methods used by VER to pursue responsible investing are governed by the following considerations with due allowance for the asset class involved: 

Integration of ESG issues in the decision-making process;
Direct monitoring of ESG performance – active ownership; 
Indirect monitoring of ESG performance – passive ownership;
Active participation in meetings of shareholders;
Exercise of influence;
Compliance monitoring;
Exits.

The fundamental policies outlined in our responsible investing may only be revised by the decision of VER’s Board of Directors. VER’s Management Team issues guidelines and seeks to develop the procedures to promote the practical implementation of the principles of responsible investing.   

The screening criteria is defined in our policy for responsible investing which is reviewed by continuous basis.

We do not actively notify our clients nor our beneficiaries about changes made in our responsible policy.


LEI 07. Processes to ensure screening is based on robust analysis

07.1. Indicate which processes your organisation uses to ensure screening is based on robust analysis.

07.2. Additional information. [Optional]


LEI 08. Processes to ensure fund criteria are not breached

08.1. Indicate which processes your organisation uses to ensure fund criteria are not breached

08.2. If breaches of fund screening criteria are identified - describe the process followed to correct those breaches.

ESG issues are discussed at meetings between VER’s portfolio managers and fund asset managers even after the investment is made. If any of the companies in the fund’s portfolio fails to meet the ESG standards applied by VER or if its ESG performance raises questions, VER initiates talks with the asset manager or takes other action to influence the fund’s operations. VER may also exit the fund if its portfolio companies fail to satisfy VER’s ESG standards. However, quick exits from private equity, real estate, infrastructure and private credit funds are not usually possible.

VER engages in passive investing by making investments in fixed-income funds and ETFs. With these investments, ESG performance is assessed before the decision is made. Compliance is verified through passive monitoring because investments in fixed-income and exchange-traded funds are based on a given index, without any consideration of the individual assets to be included in the portfolio. As a rule, VER can dispose of these investment quickly if preferred.

08.3. Additional information.[Optional]


(C) Implementation: Integration of ESG issues

LEI 10. Review ESG issues while researching companies/sectors

10.1. Indicate if E, S and G issues are reviewed while researching companies and/or sectors in active strategies.

ESG issues

Coverage/extent of review on these issues

Environmental

Environmental

Social

Social

Corporate Governance

Corporate Governance

10.2. Additional information. [Optional]


LEI 11. Processes to ensure integration is based on robust analysis

11.1. Indicate which processes your organisation uses to ensure ESG integration is based on a robust analysis.

11.2. Describe how ESG information is held and used by your portfolio managers.

11.3. Additional information.[Optional]


LEI 12. Aspects of analysis ESG information is integrated into

New selection options have been added to this indicator. Please review your prefilled responses carefully.

12.1. Indicate which aspects of investment analysis you integrate ESG information into.

12.5. Additional information.


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