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Investment Management at Sampo Group

If, Mandatum Life, and Sampo plc

The parent company, Sampo plc, and its two wholly owned insurance subsidiaries, If and Mandatum Life, have a common group-wide infrastructure for investment management, which facilitates simultaneous company and group-level reporting. This creates cost efficiencies in investment activities and enables group-wide monitoring of portfolios.

Sampo Group’s Chief Investment Officer (CIO) and portfolio managers are responsible for managing investments according to If and Mandatum Life’s investment policies. The policies, which include a section on responsible investment, are updated annually and approved by the companies’ Boards of Directors. Sampo plc does not have similar responsible investment requirements to its subsidiaries, due to the nature of its investment portfolio and its more strategic investments.

Responsible Investment Policy

At Sampo Group, responsible investing is defined as an approach to managing assets so that environmental, social, and governance (ESG) issues are incorporated into investment analysis, decision-making, and reporting. Responsible investing also includes active ownership related to ESG issues. It aims to combine better risk management with improved portfolio returns, and to reflect investor values. It complements traditional financial analysis and, therefore, ESG issues are considered in parallel with other factors affecting the risk-return ratio of investments. At Sampo Group, taking ESG issues into account in investment analysis and decision-making is part of the work profile of every employee making investment decisions and analyzing investment opportunities.

1. Commitment to Responsible Investing

Sampo Group signed the UN Principles for Responsible Investment (PRI) in 2019. According to the six principles, Group companies are committed to:

  • incorporating ESG issues into investment analysis and decision-making processes
  • being active owners and incorporating ESG issues into ownership policies and practices
  • seeking appropriate disclosure on ESG issues by the entities in which it invests
  • promoting acceptance and implementation of the principles within the investment industry
  • working together to enhance effectiveness in implementing the principles
  • reporting on activities and progress towards implementing the principles.

In addition, Sampo Group joined the UN Global Compact in 2019. According to the ten principles of the Global Compact, Group companies need to meet fundamental responsibilities in the areas of human rights, labor, environment, and anti-corruption. These principles are also integrated into the investment processes.

2. Implementation

The following responsible investment strategies concern direct listed equity investments and direct fixed income investments.

2.1 ESG Integration

According to UN PRI, ESG integration is the explicit and systematic inclusion of ESG issues in investment analysis and decision-making. At Sampo Group, ESG integration is carried out using an ESG traffic light model. The ESG traffic light model is based on ESG analysis and ESG risk ratings provided by an external service provider for each potential investment. If the service provider changes, the ESG traffic light model will be updated.

Description of the methodology

The service provider’s ESG risk rating measures the risk arising from ESG issues (including climate change) and how these risks can affect the company’s value. The ESG risk rating is a two‐dimensional materiality framework that measures both a company’s exposure to ESG risks and how well the company is managing these risks. The ESG risk rating focuses on identifying a company’s material ESG risks through several criteria and to evaluate potential ESG controversies based on information published by the company.

Description of the ESG traffic light model and its risk categories

Based on the ESG risk ratings, investment objects are categorized into internally defined risk categories. The risk categories are: low risk, medium risk, high risk and severe risk. The possible action to be taken by the portfolio manager depends on the investment’s risk category.

ESG traffic light model and risk categories

ESG-risk-categories_for_sampo-com_EN.svg

Companies which are not covered by the service provider’s analysis and do not have an ESG risk rating, should be carefully analyzed for all risk factors, including risks arising from ESG criteria, which affect the risk‐return ratio. The analysis shall be based on publicly available data. The companies which do not have an ESG risk rating are not included in the ESG traffic light model or the reporting based on it.

The ESG traffic light model and the corresponding reporting ensure continuous monitoring of risks arising from ESG issues. Sampo’s Investment Operations provides reporting on the traffic light model to internal committees at least quarterly, enabling them to monitor and analyze the ESG risks and the allocation of investments into different ESG risk categories together with the portfolio managers. The ESG traffic light model is also reported to If and Mandatum Life’s Boards of Directors at least semi-annually, and annually to Sampo plc’s Board of Directors. In addition, investments in the severe risk category are reported to the Board of Directors, if the share of severe risk investments included in the traffic-light model exceeds the internally defined threshold.

2.2 ESG Screening

Sector-based screening

Certain industry sectors are considered to carry more ESG risk than others. Investments in these sectors, so‐called sensitive sectors, are monitored closely. Both the direct and indirect involvement is considered and new investments into these sectors are made with prudence and consideration. Direct involvement refers to direct sales related to the line of business in question and indirect involvement refers to an indirect revenue stream, such as subcontracting or distribution in the business line in question. The sector involvement information is based on data provided by an external data provider. Sampo Group makes new investments in these sectors with prudence and consideration and, if a target company’s involvement exceeds internally defined thresholds, the investment can be made only with the permission of the Group CIO.

Identified sensitive sectors

Sector Potential reasons for sensitivity Direct (production/ sales) Indirect (subcontracting/
distribution)
Adult Entertainment
  • Reputational risks (potential negative reputational impacts on Sampo Group companies and their stakeholders)
  • Labor rights risks (e.g. collective bargaining, unionization rights, working conditions)
  • Human rights risks (e.g. potential links to child labor and other forms of forced labor)
0% (i.e. Group CIO’s approval is required if investments are made in a company whose business involves production or direct sales of adult entertainment) 50% (i.e. Group CIO’s approval is required if investments are made in a company whose business is distribution of adult entertainment or offering of services related to adult entertainment production, gaining more than 50% of its revenues from these businesses)
Tobacco
  • Reputational risks (potential negative reputational impacts on Sampo Group companies and their stakeholders)
  • Regulatory risks (e.g. potential new regulations)
  • Human rights risks (e.g. potential links to child labor and other forms of forced labor)
0% (i.e. Group CIO’s approval is required if investments are made in a company whose business involves production or direct sales of tobacco products) 50% (i.e. Group CIO’s approval is required if investments are made in a company whose business is distribution of tobacco products or offering of services related to tobacco products, gaining more than 50% of its revenues from these businesses)
Gambling
  • Reputational risk (potential negative reputational impacts on Sampo Group companies and their stakeholders)
  • Governance risks (e.g. potential links to money-laundering and organized crime)
0% (i.e. Group CIO’s approval is required if investments are made in a company whose business involves production of gambling services or direct sales of gambling services) 50% (i.e. Group CIO’s approval is required if investments are made in a company whose business is the distribution of gambling-related products or services gaining more than 50% of its revenues from these businesses)
Defense Material
  • Reputational risks (potential negative reputational impacts on Sampo Group companies and their stakeholders)
  • Regulatory risks
0% (i.e. Group CIO’s approval is required if investments are made in a company whose business involves production or direct sales of defense materiel) 50% (i.e. Group CIO’s approval is required if investments are made in a company whose business is the distribution of defense materiel or services related to defense materiel, gaining more than 50% of its revenues from these businesses)


In the following sensitive sectors, all involvement is considered as direct involvement:

Sector Potential reasons for sensitivity Direct (production/sales)
Controversial Weapons
  • Reputational risks (potential negative reputational impacts on Sampo Group companies and their stakeholders)
  • Regulatory risks

0% (i.e. Group CIO’s approval is required if investments are made in a company whose business involves manufacturing, subcontracting, or distribution of controversial weapons. Controversial weapons are considered to be, among others, biological, chemical, nuclear, and cluster weapons. Involvement needs to be verified by a third party.)

 

Coal Mining
  • Reputational risks (potential negative reputational impacts on Sampo Group companies and their stakeholders)
  • Environmental risks, including climate change
  • Labor rights risks (e.g. collective bargaining, unionization rights, working conditions)
  • Governance risks (e.g. potential risks of bribery and corruption)

0% (i.e. Group CIO’s approval is required if investments are made in a company whose business involves coal mining. Involvement needs to be verified by a third party.)

 


Sampo’s Investment Operations provides quarterly reporting to internal committees, enabling them to monitor and analyze, together with portfolio managers, investments into sensitive sectors and the ESG risks arising from these sectors. The internal committees evaluate information related to the sensitive sectors, such as major changes in exposure to these sectors, and report to the Board of Directors, when considered necessary.

Norms-based screening

A part of responsible investment is assessing companies’ impact on stakeholders and the extent to which a company causes, contributes or is linked to violations of international norms and standards. When new investments are planned, target companies’ possible violations against the international norms and standards laid down in international conventions, such as the UN Global Compact, the OECD Guidelines for Multinational Enterprises, the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy, and the Guiding Principles on Business and Human Rights: Implementing the United Nations 'Protect, Respect and Remedy' Framework, should be considered. If a company is not compliant with these norms and standards, Sampo Group CIO’s permission must be obtained before making the investment.

Sampo’s Investment Operations monitors holdings for possible failures to respect established norms and standards laid down in international conventions. The holdings in companies which are not compliant with international conventions, such as the UN Global Compact, are reported to internal committees at least quarterly. The companies in the investment portfolio, which are violating international norms and standards are reported to the Board of Directors semi-annually.

Description of the methodology

A company’s direct or indirect involvement in an abovementioned sensitive sector or a company’s breach of the abovementioned international norms and standards are determined primarily based on the service provider’s analysis. If, however, there are contradictory opinions on the company’s involvement, other data sources may be taken into consideration.

The sector-based research is based on the service provider’s analysis on a company’s involvement in a specific sector. The norms-based research relies on media and non-governmental organizations (NGOs) reports as well as the service provider’s own research. A norms violation is always verified by an independent third party.

2.3 Active Ownership

When it comes to ESG issues, the most natural way to influence a company’s operating methods is to engage in a direct dialogue with the company’s executive management and vote at AGMs. Sampo Group’s portfolio managers do this on a regular basis.  Sampo Group also engages through pooled engagement with other investors, if it is believed that it can be an effective means of achieving a desired change in the investment company. Reasons for engagement are breaches of international norms and standards. This information is obtained through norms-based screening (see the section Norms-based Screening). Every potential engagement action is assessed on a case-by-case basis, and the external data provider’s pooled engagement service is used to implement the action. Sampo Group aims to follow the engagement process closely to evaluate its effectiveness, and engages mainly with companies in which it has invested.

The engagement process is initiated and monitored by Sampo plc’s portfolio managers.

If a perception of a current or potential investment changes due to a high ESG risk or any other issue, after thorough background work, analysis, and sometimes even a dialogue with the company, a decision might be made not to make an investment or new investments in the company, and investments already in the portfolio might be sold over time.

3. Reporting

As part of the commitment to the UN Principles for Responsible Investment, Sampo Group has committed to reporting annually on the responsible investment practices that have been taken into use and on how the implementation of the UN Principles for Responsible Investment has been promoted.

The carbon footprint of investments is measured and reported annually in the Sampo Group Corporate Responsibility Report.

Updated 7 May 2020