Asset managers overseeing investments for Finnish earnings-related pension provider Varma have widely adopted responsible investment policies, but still face challenges in putting commitments into practice and assessing interconnected systemic risks.

The survey, which covered asset managers and fund management companies that manage Varma’s investments, examined how they manage climate and nature risks, seek to influence their investments, organise management responsibilities and resourcing, and take care of documentation and transparency.

The results of the survey showed that fund management companies are aware of responsible investment practices, as approximately 90 per cent of respondents had a responsible investment policy approved by management.

Almost all of them took responsibility factors into account in their investment decisions.

The survey also highlighted areas for improvement. Varma said that although responsibility had been considered extensively in the investment process, only about half of the asset management companies had linked employee incentives to responsibility.

The pension provider explained that incentives are a way to strengthen the link between sustainability targets, employee responsibilities and practical investment decisions.

The survey also asked respondents about their climate targets and found that 80 per cent said they assessed climate risks and opportunities in their investment decisions.

Despite this, more than half of respondents (58 per cent) reported that they had not set their own climate targets.

Furthermore, only one in 10 respondents had set nature goals aimed at preserving biodiversity.

However, the survey showed the assessment of natural risks had become more common, with almost 70 per cent of fund management companies saying they assessed nature-related risks and opportunities in their investment analysis.

Additionally, Varma suggested that geopolitical risks, technological transformation and energy security were becoming increasingly intertwined with responsible investment.

Yet the survey found that fund management companies did not assess these risks as systematically as they did climate and environmental risks.

Indeed, only 28 per cent of respondents reported they had integrated these risks into their investment decisions.

In response, Varma warned that climate and environmental risks can no longer be viewed in isolation, as they are often linked to, for example, security of supply and geopolitical tensions affecting the global economy.

The pension provider argued that, in the future, it will be even more important to consider and analyse the wide-ranging and interlinked shifts in the operating environment.

Varma vice president – sustainability, Hanna Kaskela, said: “In responsible investing, thinking has changed from looking at individual risks to perceiving the big picture.

“At Varma, we consider it important to understand how the risks affecting the operating environment of companies are interconnected. They can also reinforce each other's impacts, which is why understanding the big picture is more important than ever.”

The value of investments managed by asset managers and fund management companies covered by the survey was approximately €31.6bn, equivalent to around 44 per cent of Varma's investments.

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