Ilmarinen has announced it switched the benchmark for its €17bn of listed equities to the new MSCI Climate Action index in December, away from the ESG benchmark indices it had previously been using for internally-managed equity investments.
The €55bn Finnish earnings-related pension provider said it made the change because it had needed an index which was better suited to guide its investments towards the firm’s 2035 goal of a carbon-neutral investment portfolio.
Mikko Mursula, deputy chief executive officer of the Helsinki-based institution, said: “We have long used ESG benchmark indices in equity investments, but they are not enough to steer our portfolio towards carbon neutrality. That’s why we need a new solution.”
Instead, Ilmarinen said it would introduce climate benchmark indices from 2023 onwards.
The pensions insurance company – one of the two largest providing private-sector occupational pensions in Finland – said that up to now, its portfolio managers had used several ESG benchmark indices for internally-managed listed equity assets.
These had been broad sustainability indices that took the key aspects of responsibility into account – the environment, social aspects and good governance, it said.
But in December, Ilmarinen said, it had changed the benchmark index from the ESG index to the recently-launched MSCI Climate Action index – a benchmark that it said had more focus on climate performance.
Ilmarinen said there were many climate indices, but that often their carbon reduction came as the result of slashing investments in high-emission sectors.
Karoliina Lindroos, Ilmarinen’s head of responsible investment, said that was not enough for her firm.
“The only way to reduce climate risks is to bring about changes in the real economy,” she said.
“That is why we want to promote real emission reductions by also investing in companies operating in higher-emission industries that are making the transition to a low-carbon economy,” said Lindroos, adding that the transition of such companies was necessary in order for the whole global economy to be able to move away from fossil fuels.
Ilmarinen said it had been involved in developing the new MSCI index, which aimed to reduce the risks to the value of investments caused by climate change – and to benefit from opportunities arising from the fight against climate change.
However, for investment grade corporate bonds, Ilmarinen said it was now introducing an ESG benchmark index, rather than a climate index.
Kari Eerola, head of fixed income, said this was the best solution for Ilmarinen at this stage, and also steered the carbon footprint in a better direction.
“In fixed income investments, ESG indices have a shorter history than equity investments,” he said.
“We are actively monitoring the development of the indices and are ready to move to the climate index once a product similar to equity investments has been launched,” he said.
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