Varma Invests EUR 230 Million in State Street’s Sustainable Climate Bond Funds

Varma invested EUR 230 million in the Sustainable Climate Corporate Bond Funds of the world’s third-largest asset manager State Street Global Advisors. The funds aim to achieve a significant reduction in investors’ exposure to carbon emissions and allocate capital to fund the transition to a low carbon economy. Varma is a seed investor in State Street’s new index funds, as they help Varma achieve its own climate-related targets.

“Mitigating climate change has been one of the main goals of Varma’s responsible investment for several years now. These index funds gave us the opportunity to increase our climate allocation also in corporate bond investments. The Sustainable Climate Corporate Bond Funds are well aligned with Varma’s climate-related targets. In terms of mitigating climate change, we aim for a carbon-neutral investment portfolio by 2035,” says Petri Ala-Härkönen, Director, FICC, at Varma.

Behind the launch of the new climate-friendly funds is State Street, a US banking and investment services company and the third-largest asset manager in the world.

“Our new Sustainable Climate Bond funds aim to significantly reduce investors’ carbon emissions and fossil fuel exposure, and to re-allocate capital to investments which genuinely contribute to climate change mitigation and adaptation, while keeping close to the index returns,” says Carlo Funk, EMEA Head of ESG Investment Strategy for State Street Global Advisors.

Funds take sustainability broadly into account

The funds invest in European and US corporate bonds. They are aligned with the goals of the Paris Agreement and the funds have 70% lower carbons emissions compared to the benchmark index at launch. The funds prioritise investments in green bonds and companies that are well prepared for the transition to a low-carbon economy. In addition to the environment, the funds more extensively minimise sustainability risks related to social and governance matters.

According to Varma’s Senior Portfolio Manager Ann Brännback, the funds take sustainability factors broadly into account. Tobacco companies, companies producing controversial weapons and companies violating the UN’s principles concerning human rights and anti-corruption are for example excluded from investments.

“It is a good thing that, in addition to the exclusions, green bonds and companies that are adapting well to a low-carbon economy are given greater weight. The diverse ESG factors combined with both climate change mitigation and adaptation make these cost-efficient corporate bond index funds very compelling to Varma,” Brännback says.

Varma Mutual Pension Insurance Company is a responsible and solvent investor. The company is responsible for the statutory earnings-related pension cover of some 900,000 people in the private sector. Premiums written totalled EUR 4.9 billion in 2020 and pension payments stood at EUR 6.0 billion. The company’s investment portfolio amounted to EUR 52.9 billion at the end of March 2021.

State Street Global Advisors is the world’s third-largest asset manager, with USD 3.59 trillion in assets under management. The company is a pioneer in index, ETF, and ESG investing.