Responsibility in equity and bond investments

In equity and bond investments of Mandatum’s own strategies, the main ways to consider sustainability include assessing the economic impacts and risks of sustainability factors as part of the investment analysis. The analysis utilises the Sustainalytics and ISS ESG analyses, as well as the net impact model developed by the Upright Project, which measures both the positive and negative impacts of companies, as well as their overall net impact on society and the environment. Other applied approaches include avoidance of certain industries, norm-based and sanction screening, as well as engagement and active ownership. The environmental aspects of the investments, such as greenhouse gas emissions and fossil fuel-related activities, are regularly monitored.

Mandatum publishes carbon intensity figures for investment portfolios through bi-annual sustainability reports and SFDR periodic disclosure. The carbon footprint of equity and bond investments has been decreasing year on year.

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Mandatum monitors the greenhouse gas emissions of its investments and the share and development of fossil fuel companies in portfolios. Investments are also regularly monitored for violations of international standards such as the UN Global Compact and the OECD Guidelines for Multinational Enterprises. If violations are detected, efforts are made to influence such investment objects. The portfolio has succeeded in significantly reducing its emissions through measures including company selection and investments in lower carbon industries.

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Mandatum joined the PRI in 2011, and an annually updated Responsible Investment Policy has been in place since then. Minimum restrictions and exclusion criteria for sensitive sectors have been included in the policy and these are applied for direct equity and fixed income investments made from strategies that comply with Articles 8 and 9 of the SFDR. Sensitive sectors are defined as controversial weapons, coal, tobacco, adult entertainment, gambling, military equipment and oil. Stricter exclusion criteria may also be applied on a product-by-product basis.

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The three-step investment process for equity and bond investments in Mandatum’s own strategies includes an assessment of ESG factors as part of each step. In the first step Mandatum assesses the compatibility of the company's sustainability policy with its strategy and excludes investments that do not meet the criteria defined in the Responsible Investment Policy for the sector or product group. The investment target analysis seeks to identify potential ESG risks and opportunities. For bond investments, this includes a risk assessment of the target company and loan documentation. In the case of a completely new company or a riskier investment object, the analysis and risk identification are more thorough, and the investment decision can be presented to the Investment Committee. In addition to the ESG analysis, the investment decision considers analysis by external providers such as Sustainalytics and ISS. Portfolio investments are divided into four risk categories based on ESG risk ratings and are diversified on a regular basis. Depending on the risk category, Mandatum requires portfolio managers to take additional measures before making an investment. If the risk category of an investment in the portfolio changes, the investment is reassessed.

Equities and bonds as fund investments

Mandatum utilises partner solutions and external funds in markets where the Group does not have specific expertise. Passive index funds are generally used in markets where active portfolio management has limited potential to create added value.

From a sustainability analysis perspective, the key difference between external fund investments and direct equity and fixed income investments is that the analysis and investment decision at company level is made by the portfolio manager managing the fund, thus the sustainability analysis focuses on the processes of the fund manager.

Mandatum assesses the target fund’s portfolio manager's sustainability commitments, investment and risk management process, resources, reporting, and the consistency of their approach with Mandatum's own approach. Among other things, attention is given to how the investment process ensurest compliance with international standards, whether investments are restricted from a sustainability perspective, the climate risk of the fund's investments, and the active ownership practices of the company managing the fund.