Sitra’s guidelines for responsible investment

For Sitra, responsible investing means taking account not only of the return and risk but also of the environmental, social and governance (ESG) factors in all investment decisions in accordance with the UN Principles for Responsible Investment (PRI).

Climate change mitigation is one of Sitra’s most important goal in responsible investment. Therefore, a separate climate strategy for investments has been prepared to promote this goal.

In defining the responsibility of the investments, we also take into account national legislation and the UN Global Compact principles, which include ten guidelines related to the environment, corruption, human rights and labour force.

Our approach to ESG

Sitra’s investments are mainly made through funds. The investments are managed by external asset managers who make individual investment analyses and investment decisions. Sitra’s portfolio also includes a number of direct investments. Responsibility is reflected in the selection and monitoring of investments and is subject to continuous development.

Below, you will find an overview of Sitra’s operating principles and how we use different responsible investment approaches.

1. Integration of ESG

ESG integration means that we include environmental, societal and corporate governance (ESG) issues in investment analysis and investment decisions and also in investment monitoring. ESG issues are integrated into the investment analysis alongside traditional financial indicators.
Since a significant portion of Sitra’s assets is managed by external asset managers, the selection, monitoring, and dialogue with these managers are critical points of influence for both returns and responsible investing.

When selecting asset managers, factors to be examined include the asset manager´s responsible investment policies, the responsible investment approaches, their impact on decision-making, ESG reporting practices, ownership policy, voting policy and practices as well as education in ESG issues. The goal is to ensure that the practices applied by the selected asset managers are in line with Sitra’s Guidelines for Responsible Investment.

The minimum requirement in fund investments is that the asset manager has signed the PRI or follows another responsible investment practice. The asset managers are required to take the ESG issues into consideration with their investment strategies, processes and, ultimately, their investment decisions and their engagement and active ownership practices. Sitra primarily selects funds and asset managers who are both successful and responsible operators.

Sitra implements its guidelines for responsible investment as comprehensively as possible, taking into account the characteristics of each asset manager, asset class and investment instrument.

2. Active ownership and engagement

Dialogues

When investing in a fund, the best opportunity to influence the fund’s policies is in the preparation phase, since after the investment is made the asset manager has the key decision-making power in the fund. The responsible investing practices are monitored annually via asset manager meetings, to obtain information on best practices and areas for improvement.

The Board of Directors and General Meetings

When Sitra is a significant shareholder in a company, it participates in the company’s operations and its development through, for example, by being an active board member in collaboration with the company’s management and other shareholders.

With regard to funds, Sitra monitors the engagement efforts and ownership practices of the asset managers, such as their voting practices, whenever possible. In terms of alternative investment funds (such as private equity funds), Sitra strives to participate in the annual meetings of the funds.

Investor initiatives

In investor initiatives, a broad and influential ownership base strives to influence development regarding certain themes, sectors or companies. Sitra participates in initiatives that support its investment strategy and sustainable development goals, such as the Climate Action 100+ initiative, which aims to reduce emissions.

3. Thematic investments

In thematic investments, Sitra favours industries and businesses that contribute to the achievement of the UN Sustainable Development Goals. Through thematic investments, Sitra not only seeks returns in certain industries but also supports the development of the selected industries. Examples of Sitra’s thematic investments include clean technology funds and renewable energy infrastructure funds.

4. Exclusions

Sitra’s goal is to exclude companies operating in the following sectors from all our investments:

• manufacturers of tobacco products if the tobacco products account for more than 50% of turnover
• companies manufacturing controversial weapons (cluster bombs, land mines, biological and chemical weapons, nuclear weapons and depleted uranium)
• companies with more than 30% of their turnover linked to coal production or coal use in power generation without a clear strategy to reduce coal use

We require Sitra’s fund managers to report on deviations in the company sectors. The sector screening of fund portfolios is carried out based on available information at least once a year.

International norm breaches are considered as violations of UN Global Compact Principles concerning human rights, the environment, corruption and working conditions. Possible norm breaches are regularly discussed with the asset managers, and they are encouraged to raise any related responsibility issues with investees. If the discussions do not result in the desired change and the deviation is significant, Sitra may divest the investment.

The restrictions described above are also applied to Sitra’s direct company investments.

Sitra does not invest in funds that are registered in tax havens. Sitra always identifies the fund domiciles of the funds considered for investment. Regarding the fund of funds (or similar), Sitra’s possibilities to investigate the fund domiciles is limited to the main partnership.

Sitra requires all of its asset managers investing in sovereign debt to monitor the relevant risks associated with the country, meaning political, financial or public security risks. These include issues such as the human rights situation or serious deficiencies in the rule of law. The goal is to avoid any investments in such countries.

We also require our asset managers to monitor and consider international sanctions related to states and their citizens in all of their investment decisions.

5. Impact investing

In addition to returns, impact investing is also aimed at generating a social impact. Forms of impact investing include, for example, green bonds and microfinance funds that focus on social impact. Moreover, Sitra has also invested in several performance-based impact funds (SIB funds).

Ensuring competence

Sitra is keen on developing and training its personnel in responsible investment themes. The personnel is encouraged to participate in ESG-related trainings. We are actively involved in the activities of, for example, Finsif (Finland’s Sustainable Investment Forum), Finnish Venture Capital Association and Invest Europe.

Decision-making, reporting and measurement

Sitra’s Board of Directors approves the Guidelines for Responsible Investing. Sitra’s Vice President (Investments) is in charge of organising the implementation of the guidelines, while all members of the investment team are responsible for the implementation of Sitra’s responsible investment activities.

Information on responsible investment activities is available on Sitra’s website and in the annual report. Moreover, a report on Sitra’s practices is submitted annually to the PRI and internally to Sitra’s Board of Directors.