ILMARINEN ADOPTS SUSTAINABILITY BENCHMARK INDICES IN ITS INVESTMENTS
Ilmarinen has adopted sustainability benchmark indices in its investment operations on a broad scale. Portfolio managers will compare their stock selections against the indices, which include the most responsible companies in each sector and geographical area.
The benchmark indices are based on sustainability ratings that take into account the companies’ sustainability performance in environment, social and governance (ESG) issues. The ESG index includes the best-rated companies in each sector and area that represent 50 per cent of the market value of the corresponding parent index. In addition, companies that manufacture, for example, tobacco products or controversial weapons, and companies that have committed serious breaches of international norms are excluded entirely from the ESG indices.
The new ESG benchmark indices cover roughly half of Ilmarinen’s portfolio of listed equities. Ilmarinen’s total investment assets amount to approximately EUR 36.5 billion, more than a third of which is invested in equities.
– By adopting the new benchmark indices, Ilmarinen is taking sustainability a step further in its investment operations. The performance of the portfolio managers will be compared against the benchmark index and their incentives will be tied to it. With the new benchmark indices, we wish to encourage our portfolio managers to place even greater emphasis on sustainable companies in their investment decisions, says Mikko Mursula, Ilmarinen’s Chief Investment Officer.
Ilmarinen also has in place its own sustainability ratings which have been integrated in the company’s investment decisions. It will still be possible to invest in companies outside the ESG index if the company in question receives a sufficiently high sustainability rating. Investing in companies with weaker ratings always requires further investigation.
– Now the benchmark indices are also more in line with our own sustainability ratings and our criteria for responsible investments, says Mursula.
For Ilmarinen, responsible investment is part of risk management and does not entail compromising on return targets.
– A sustainable company also has access to better financing opportunities, which contributes to making it a profitable investment. We believe that a company that operates sustainably is a better investment in the long run, and by investing responsibly we will secure the best possible return for Finnish pensioners, says Mursula.
By adopting responsible benchmark indices, Ilmarinen aims to be a forerunner in responsible investments.
– Many investors have already implemented indices and funds that focus on sustainability, which is a very good thing. However, it is still quite rare for institutional investors to use ESG benchmark indices on this scale. Ilmarinen adopted sustainability ratings in 2015, and responsible benchmark indices were a logical step forward for us, Mursula explains.
The ESG benchmark indices used by Ilmarinen are based on the sustainability ratings produced by MSCI, an international provider of index and analysis services.
Mikko Mursula, CIO, tel. +358 50 380 3016
Tiina Landau, Senior Advisor, Responsible Investments, tel. +358 45 671 1286
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