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Investment Management at If

Sustainability is an integral part of If’s core business. In investment operations, If aims to be an active owner and to develop investment analysis, decision-making processes, and ownership practices. In 2022, If will start developing climate-related targets for investments in line with If’s commitment to the Science-Based Targets initiative.

If’s approach to responsible investment

This policy provides instructions on how to take ESG issues into account in investment processes. Acknowledging ESG issues is part of the work profile of each employee making investment decisions and analysing investment opportunities. In this policy, responsible investment actions are divided into the following three sections: commitment, implementation, and reporting.

Responsible investment described herein (i.e., the ESG traffic light model, the ESG screening and active ownership) only applies to direct listed equity investments and direct fixed income investments.

The policy regarding If’s approach to responsible investment is reviewed and approved by the Boards of Directors of If at least yearly. If’s Investment Control Committee (the “ICC”) supervises If’s investment activities in accordance with the principles set out herein and the Chairman of the ICC shall approve certain investments as set out herein. If’s Investment Operations monitor holdings regarding ESG risk rating, possible sensitive sector involvement and possible failures to respect established norms and conventions. This unit also assists in engagement processes. If’s sustainability unit shall provide input to the ESG risk rating, sensitive sector and norms-based screening approval processes and assist in the pooled engagement process.

Commitment

ESG issues have an impact on the long-term performance, risks, and value of all companies. Hence, taking these issues into consideration in the investment process is an important means to improve the risk-return profile of investment and it is a critical success factor of investment activities.

Sampo Group, which If is part of, has signed the UN Principles for Responsible Investment (UN PRI). According to the six principles, Group companies are required to:

  • incorporate ESG issues into investment analysis and decision-making processes
  • be active owners and incorporate ESG issues into ownership policies and practices
  • seek appropriate disclosure on ESG issues by the entities in which it invests
  • promote acceptance and implementation of the Principles within the investment industry
  • work together to enhance effectiveness in implementing the Principles
  • report on activities and progress towards implementing the Principles

In addition, Sampo Group has joined the UN Global Compact. According to the ten Principles of the Global Compact, the Group companies need to operate in ways which, at the minimum, meet fundamental responsibilities in the areas of human rights, labour, environment and anti-corruption. These principles should also be incorporated into investment processes.

Climate change affects us all and therefore requires long-term solutions that actively involve the insurance industry in partnership with other stakeholders. If aims to continually reduce its own emissions and to encourage its partners and customers to reduce theirs. If has joined the Science-based target initiative (SBTi) and is committed to set ambitious and science-based targets. Targets are considered science-based if they are in line with what the latest climate science deems necessary to meet the goals of the Paris Agreement, i.e., limiting global warming to well-below 2°C, preferably 1.5°C, compared to pre-industrial level. If follows the SBTi sector-specific guidelines for the financial sector and will, inter alia, develop climate targets for the investment operations.

Implementation

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.

Description of the service provider’s methodology

The service provider’s ESG risk rating measures the risk arising from ESG issues and how these risks can affect the company’s value.

The service provider’s 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 those risks. ESG risk rating focuses on identifying a target company’s significant ESG risks through a number of 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 provided by the service provider, 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 risk category of the investment.

Prior to making an investment in a new issuer, screening of the issuer’s ESG risk rating should be made. In addition, investments shall be checked against the ESG risk ratings on a monthly basis. The results of the ESG risk rating screening shall be documented and, if applicable, be included in an application for approval. Depending on the results of the ESG risk rating screening, the additional actions described below should be taken.

Risk categories of the ESG traffic light model

Sampo_CR-traffic-light_2022_EN.svg

Issuers that are not ESG rated by the service provider should be carefully analysed for all risk factors that affect the risk-return ratio including risks arising from ESG criteria. The analysis should be based on publicly available data. Investments in issuers without an ESG risk rating by the service provider are not included in the ESG traffic light model and the reporting based on it.

ESG screening

Sensitive sectors screening

Certain industry sectors are considered to carry more ESG risk than others. Investments in these sectors, the so-called sensitive sectors, shall be monitored closely. Both the direct and indirect involvement is considered and new investments into these sectors shall be 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 information is based on publicly available data.

The sectors that have been identified as sensitive

Industry Direct (production) Indirect (distribution/Services) Description

Adult Entertainment

0%

50%

An approval from the Chairman of the ICC is required when investments are made in a company whose business involves the production of adult entertainment or whose business is the distribution of adult entertainment or services related to adult entertainment gaining more than 50% of its revenues from this business.

Tobacco 0%

50%

An approval from the Chairman of the ICC is required when investments are made in a company whose business involves the production of tobacco products or whose business is the distribution of tobacco products or services related to tobacco products gaining more than 50% of its revenues from this business.

Gambling 50%

50%

An approval from the Chairman of the ICC is required when investments are made in a company whose business involves gambling directly or whose business is the distribution of gambling related products or services gaining more than 50% of its revenues from this business.

Defence materiel 

50%

50%

An approval from the Chairman of the ICC is required when investments are made in a company whose business involves the production of defence materiel or whose business is the distribution of defence materiel or services related to defence materiel gaining more than 50% of its revenues from this business.

Controversial weapons 0%

0%

An approval from the Chairman of the ICC is needed when new investments are made in companies whose business involves the manufacturing, subcontracting or distribution of controversial weapons. Controversial weapons are, among others, biological, chemical, nuclear and cluster weapons. Only involvement verified by a third party is included.
Oil 50% 50% An approval from the Chairman of the ICC is required when new investments are made in companies whose core business is extraction, production or refining and processing of oil or the production or distribution of oil-based energy, if the company does not have a clear strategy to transition to a more sustainable business model.
Coal 0% 0% An approval from the Chairman of the ICC is required when new investments are made in companies whose business is mining of carbon or coal, coal mining subcontracting or the production or distribution of coal-based energy.

Notwithstanding anything to the contrary in this policy, prior to making an investment in an issuer operating in any of these sectors, the Chairman of the ICC’s approval must be obtained, provided that the companies’ involvement exceeds the thresholds presented in the table above.

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 Paris Agreement, 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’ Project, Respect and Remedy Framework, should be considered.

If a company is not compliant with these norms and standards, the Chairman of the ICC’s approval must be obtained before making the investment. The results of the norms-based screening shall be documented and, if applicable, be included in an application for approval. In addition, depending on the severity, nature and scope of the violation, the action can also consist of a direct dialogue with the management of the investee company or measures of pooled engagement (see Section 2.3, Active ownership).

Investment Operations shall monitor holdings for possible failures to respect established norms and standards laid down in international conventions.

If also respects legally required exclusions based on domestic and international law. If does not invest in sovereign bonds issued by governments that are subject to broad sanctions.

Description of the service provider’s 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 and be presented to the Chairman of the ICC in connection with the application for approval.

The sector-based research is based on the service provider’s own analysis on a company’s involvement in a specific sector. The norms-based research relies on the media, NGO reports, fact finding dialogue with companies as well as the service provider’s own analysis and a norms violation is always verified by an independent third party.

Active ownership

Active ownership refers to measures taken to guide and control the management of investee companies with the aim of achieving the best possible profitability and long-term return for shareholders and to ensure that the legitimate interests of other stakeholders are taken into account.

As an active owner, If strives to ensure that its investee companies operate responsibly. Key engagement issues include, for example, international norms and standards which If expects companies to comply with, governance and compliance related matters, as well as climate change.

In general, If only engages with companies that it has invested in and can decide not to engage with a company, for example, to avoid conflicts of interest. Additional criteria to consider before engaging can be e.g., materiality of the ESG issue, size of the investment, actions already taken by the investee company, and geographical location.

Active ownership also applies to fixed income investments, where applicable.

Monitoring of investee companies’ operations

If monitors the operations of investee companies in various ways by following news, stock exchange releases, information provided by external service providers, and the investee companies’ reporting. If expects the investee companies to be open and transparent in their operations and provide information on their financial performance, strategy, risk management, capital structure, and governance. In addition, If also pays attention to the scope and quality of investee companies’ reporting on their sustainability principles and climate impact, as well as how they are applied and any related goals.

Besides monitoring news and statutory and voluntary reporting, If’s portfolio managers engage regularly with investee companies, for example, through participation in the companies’ investor events and general meetings. If may also meet directly with the management of the companies. The purpose of the meetings is to discuss matters that are important in terms of the investee company’s success, e.g., the company’s goals, possible challenges and sustainability in business operations and capacity to rectify possible discrepancies. Internal staff engagement is used both in a proactive and reactive manner.

Participation and exercising the right to vote in general meetings

Voting at annual general meetings (AGMs) is also a tool for shareholders to express their views and can be used in conjunction with other engagement activities.

Participating at AGMs is part of the portfolio managers’ responsibilities. The portfolio managers keep records of the AGMs they have attended and the votes they have cast at the meetings. The number of AGMs attended and voting behaviour is reported quarterly on group level in Sampo Group’s Sustainability Factbook. If may authorise an employee to participate and vote at the AGM or use an external service provider to whom If gives voting instructions on exercising the right to vote. Voting in person or by proxy depends primarily on the geographical location of the investee company. Voting decisions are made by the portfolio manager.

Should any proposals submitted to the general meeting by an investee company’s Board of Directors deviate from If’s engagement and sustainability principles, If may initiate discussions with the company before the AGM in order to reconcile the opinions. If a discussion is not possible or if it does not lead to a mutual understanding, ownership rights may be exercised in possible voting situations. If strives to ensure that the investee company knows the grounds for If’s voting behaviour in cases where If does not support the Board’s proposal.

If necessary, If may, as a shareholder, make proposals that promote good governance and sustainability as well as support similar proposals by other shareholders and take part in preparing such proposals.

Pooled engagement

If may exercise ownership together with other investors through pooled engagement if it is believed to be an effective means of achieving a desired change in the investee company. Pooled engagement is used mainly in a reactive manner to address issues that may have already occurred. If uses an external service provider for screening investments and initiating engagements.

Engagement processes may take years depending on the severity of the case. Engagement progress and outcomes are monitored internally and through the service provider while the engagement is ongoing. In unsuccessful engagements the escalation strategy depends on the size and type of investment. If the investee company is unresponsive to engagement activities, the investment may be sold, or the exposure reduced.

Description of the methodology

Through pooled engagement, If can voice concerns with companies that fail to respect established norms and companies that face credible allegations as identified by the service provider’s teams of analysts, and request transparency regarding risk mitigation. Every engagement action is assessed on a case-by-case basis by the portfolio manager with the assistance of the Head of Sustainability and Investment Operations. The pooled engagement action is coordinated by an external service provider. Methods of engagement include, for example, letters, emails, and meetings. The service provider provides quarterly reporting on all engagement activities and access to continuous monitoring of ongoing engagements.

The pooled engagement process is coordinated on group level by Mandatum Asset Management’s portfolio managers. Attention to possible conflicts of interest shall be paid when conducting active ownership activities. The aim should be to exercise the engagement processes in line with the best interest of the customers and other stakeholders of the Group. To avoid conflicts of interest, internal approval and mapping processes shall be conducted before all pooled engagement actions.

Implementation with respect to fund managers and outsourced asset management

Prior to selecting a new external fund manager or asset manager, If should establish relevant ESG aspects and analyse the prospective partner’s commitment to responsible investment. Examples of issues to raise when conducting due diligence before selecting a new partner include if the partner is a signatory to the UN PRI and/or UN Global Compact, any formal responsible investment policy and processes of the partner, the extent of ESG reporting, identified ESG risks and opportunities etc.

Reporting

Investment Operations shall at least quarterly provide reports to the ICC enabling the ICC to monitor the breakdown of the investments into the risk classes of the ESG traffic light model and into sensitive sectors. In addition, the holdings in companies which are not compliant with the international conventions, such as the UN Global Compact, shall be reported to the ICC at least quarterly. This information shall also be reported to the Boards of Directors on an annual basis.

Pooled engagements shall be monitored and reported to the ICC at least annually. Moreover, the progress of on-going engagements and the outcome of past engagements shall be monitored and reported to the ICC at least annually. Engagements shall also be reported to the Board of Directors as part of the regular Board materials.

More information in Sampo Group’s Sustainability Report.

Updated 28 Jan 2022