The key climate policy goal of Elo’s investments is to bring about real-world change

At Elo, we are committed to a carbon-neutral investment portfolio aligned with the objectives of the Paris Agreement. Achieving this goal requires a comprehensive approach: reducing emissions, supporting an orderly and just transition, solutions for climate change mitigation and adaptation, and engagement and collaboration. Swift climate action is needed, but the transition must also be orderly and just, so that the overall risks remain as low as possible in the long term. 

The key climate policy goal of Elo’s investments is to bring about real-world change. Portfolio changes based purely on emissions do not necessarily promote an orderly and socially just energy transition, or reduce overall global emissions. The global economy needs the involvement of every industry to achieve a sustainable transition. It is important to ensure that companies and governments implementing the transition also have sufficient resources in terms of capital. Collaboration between the various parties involved is essential for achieving the objectives.   

Restrictions and exclusions as the basis for building the equity portfolio 

Over 90% of Elo’s listed equity investments are made as direct investments, which is cost-effective and transparent. Targets aligned with our sustainability principles and climate policy, voting at general meetings and other engagement measures can also be flexibly implemented into our equity investments.  

Restrictions and exclusions serve as the minimum requirements for our investments. Emission reduction targets in accordance with our climate roadmap, support for sustainable solutions, investees having science-based emission reduction targets and the exclusion of certain fossil fuel exclusions constitute the basis for building the equity portfolio. We have set interim targets for 2025 and 2030, and we engage in continuous development efforts.

Our target is to reduce the weighted average carbon intensity[1] of our listed equity investments by 25% by 2025 and by 60% by 2030. For direct listed equity investments, our target is to double our investments in sustainable solutions[2], such as climate change mitigation and adaptation, by 2030. A further goal is for the majority of our investees to have science-based emission reduction targets (SBT). 

We regularly monitor our investees’ shares of fossil and renewable energy production and their capital expenditure in the categories in question. In our direct listed equity investments, we exclude companies that derive more than 15 per cent of their turnover from activities related to coal production or the use of coal in energy production without a clear strategy for reducing the use of coal. At present, we have excluded over 160 fossil companies from our investments.   

Effective from the beginning of 2024, we will apply stricter and broader restrictions and exclusions to fossil companies, specifically with regard to coal investments and certain forms of oil and gas production.  

The green transition requires action from everyone 

A just and orderly green transition requires action from every sector, particularly those with the highest emissions. We engage with a number of climate-related collaboration initiatives, including Climate Action 100+, the IIGCC (Institutional Investor Group on Climate Change), the Transition Pathway Initiative, the CLC (Climate Leadership Coalition), the CDP (investor member in the climate, water and deforestation initiatives) and various public statements and appeals. Participating in initiatives is important to us, as collaboration gives us a greater voice to promote important issues.   

Our recent collaborative measures include participating in a joint letter to companies with the aim of increasing transparency in lobbying related to climate action and aligning lobbying activities with the 1.5°C target. We have been in contact with over 70 companies with regard to their transition plans and about 100 oil and gas companies with regard to their plans for a socially just transition. We also participate in joint engagement action aimed at reducing the methane emissions of companies in the oil and gas sector, as well as a joint statement concerning the emission reduction targets of companies in the chemical industry. 

We pay special attention to the emission-intensive companies in our portfolio when it comes to voting at general meetings. This year, we have participated in approximately 1,000 general meetings. 

Dialogue with companies and other market participants is particularly valuable. As we invest in a wide range of sectors in a geographically diversified manner, we seek to obtain information globally on the activities of companies. We place a high value on information we receive through various initiatives and non-governmental organisations about problems and shortcomings, which we can then discuss with the companies.

Sustainable change through collaboration  

The transition towards a more sustainable society requires collaboration between various parties to enable each party to put their respective strengths to use. We share the same ambition and goal. Each participant is needed, and no-one will be left by the wayside. Together, we have a chance to succeed.   
[1] WACI=Weighted Average Carbon Intensity, scope 1+2, baseline 2019 
[2] baseline 2021 

Climate policy for Elo’s investments
 
Authors:
Anna Varpula, Director of Responsible Investment at Elo
Niko Syrjänen, Head of Equities at Elo