TURNING ESG IMPACT INTO BUSINESS OPPORTUNITIES

Transcription

1 TURNING ESG IMPACT INTO BUSINESS OPPORTUNITIES Dagens industri: ESG Investing for the next generation Timo Ritakallio, President and CEO, Ilmarinen Mutual Pension Insurance

2 AGENDA Ilmarinen in brief Responsible investment Incorporation of ESG analysis Case: Approach to investment climate impacts Making the business case 2

3 3 Ilmarinen in brief

4 ILMARINEN TAKES CARE OF THE PENSION COVER OF CLOSE TO 900,000 FINNS 500,500 employees 38,400 companies 61,900 self-employed persons PENSION CONTRIBUTIONS For pension payments to 323,000 pensioners For investments in future pensions 4

5 MARKET VALUE OF INVESTMENTS OVER EUR 35 BILLION Asset allocation according to risk 5

6 RETURN ON INVESTMENTS ON 4 PER CENT TREND Cumulative net return on investments Ilmarinen s real return cumulative real return cumulative real return 6

7 7 Ilmarinen as an investor

8 ILMARINEN S INVESTMENT THESES Theses The most important decision Strategic allocation is the main determinant of return and risk. Investment horizon Predictable long-term pension-liabilities and cash flows enable longterm investing. Risk-taking Investment risk is taken in order to secure sufficient returns and solvency in the long run. The sources of return change over time and we exploit these changes actively. Market efficiency We take advantage of occasional market inefficiencies in order to generate added value. Risk management Investment risks are diversified to optimize return distributions. Not all investment risks and adverse events are predictable. Responsible investing is a way of reducing risk. Resources and cost-effectiveness Returns are always assessed after total costs. We outsource only functions where we ourselves cannot add value in a cost-effective manner. 8

9 INVESTING SUCCESSFULLY Our strategic allocation aims at securing our long-term solvency Our allocation is dynamic and we are active in exploiting changes in the sources of return We act cost-effectively We diversify investment-risk We invest sustainably for the long term

10 INVESTMENT STRATEGY 2020 Inv. & premium loans 4% 28% Fixed income and credit risk investments Credit risk inv. Money mark. & bonds 4% 20% 37% Listed equities Real estate 14% 18% Real investments Infrastructure 3% Agric. & foresty 1% 7% Private equity investments Private equity funds Non-listed equities 5% 2% 10% Absolute return investments Abs. return funds Abs. return strategies 3% 7%

11 11 Sustainability as a part of the strategy

12 SUSTAINABILITY AT ILMARINEN 12

13 SUSTAINABILITY MEGATRENDS TAX PAYMENT International tax regulations and the automatic exchange of information give governments better conditions for collecting corporate tax Companies are facing evergreater public pressure to pay their taxes 13

14 14 Responsible investment

15 WHAT IS SUSTAINABILITY IN INVESTMENT OPERATIONS? Pension assets must be invested in a profitable and secure manner In addition to financial viewpoints we also take into consideration companies sustainability, or ESG* For us, responsible investment is a part of managing investment risks In our view, sustainability affects companies financing costs 15 *Environmental, social, governance issues

16 ACTIVE OWNER We bring up sustainability issues in meetings with the top management of companies We also engage with companies outside of Finland, particularly together with other Nordic investors We participate actively in general meetings and board nomination processes 16

17 RESPONSIBLE REAL ESTATE INVESTOR 17 We invest in real estate responsibly and in the long term: We utilise environmentally friendly and recyclable materials in construction We require, at the very least, LEED Gold environmental certification in our construction projects Buildings need to be healthy and safe for their users We are mindful of our responsibility in terms of maintaining cultural heritage We co-operate with tenants e.g. in order to combat the shadow economy

18 18 Incorporation of ESG analysis

19 ESG ANALYSIS AND RATINGS Sustainability is an integral part of our investment decisions, it is not a separate function Ilmarinen s sustainability ratings play a crucial part in investment decisions (coverage over 3000 companies!) Supported by IT systems: Portfolio managers follow sustainability ratings in their screens alongside financial data 19

20 INCORPORATION OF ESG INTO INVESTMENT DECISIONS Reactive Proactive Norms Risks Megatrends ESG analysis integrated into investment decisions Sustainability ratings combine several sources and types of analysis, incl. external analysis and internal decisions 20

21 VIOLATIONS OF INTERNATIONAL NORMS Norms Risks Megatrends We require our investment targets to go beyond the law and also adhere to international norms Requirement includes UN Global Compact and underlying norms such as ILO labour rights, Rio declaration on environment etc. We actively engage with companies in relation to norm violations 21

22 MANAGEMENT OF SUSTAINABILITY RISKS Norms Risks Megatrends We make a comprehensive assessment of companyrelated sustainability risks before investment decision making We look both at risk exposure and management systems Companies need to pass a certain threshold to become an investment target of ours We study borderline companies in more detail 22

23 BUSINESS OPPORTUNITIES FROM MEGATRENDS Norms Risks Megatrends In our global stock selection, we try to find companies that benefit from future megatrends, and are therefore able to grow higher than the market As our investments are guided by fiduciary duty, these investments need to also make a strong business case Current themes e.g. water and resource scarcity, urbanization After Paris agreement new business opportunities from climate change also good investment targets in the long run? 23

24 24 Case: Approach to investment climate impacts

25 CLIMATE ANALYSIS TOOLS Carbon footprinting Green/brown exposure Climate ratings Investments Annual carbon footprinting of direct holdings In 2016, we include equities, bonds and constructions of new buildings Exposure of companies to renewable and fossil fuel based energy as well as fossil reserves We will formalize certain thresholds in 2016 Climate risks and opportunities are integrated in our security selection through company sustainability ratings We are looking to further enhance our understanding on investee s strategic choices and future exposure to climate risks 25

26 CLIMATE STRATEGIES Engagement: We act as an active owner to improve climate reporting and risk management of companies E.g. through CDP, as part of international investor collaboration and shareholder resolutions in annual general meetings Divestment: We renounce ownership in specific companies with high climate-related financial risks In 2015 we divested from 3 companies 26

27 27 Key conclusions

28 MAKING THE BUSINESS CASE We have made use of ESG analysis systematic through company ratings this is key to our risk management Global megatrends create opportunities higher than market growth and attractive investment case Companies should communicate their megatrend-related businesses in an understandable way for investors 28

29 FOR A BETTER LIFE.