Products for institutional investors

Summary
No sustainable investment objective
Environmental or social characteristics of the finance product
Investment strategy
Share of investments
Monitoring of environmental or social characteristics
Methods
Data sources and data processing
Limitations of the methodology and data
Due diligence
Shareholder engagement policy
Designated reference benchmark

Summary

The aim is for the Fund to act as a long-term real estate investment vehicle for its investors, and it may execute transactions throughout its term.

The Fund promotes environmental and social characteristics by favouring flexible, energy-efficient properties that are suitable for more than one purpose. The Fund favours low-carbon options and invests in renewable energy production. The Fund places emphasis on the longevity and convertibility of properties in selecting investments as well as in construction and modernisation. The Fund seeks to promote sustainable mobility by building electric vehicle charging stations, secure bicycle parking, and additional social facilities for users.

This financial product promotes environmental or social characteristics, but sustainable investment is not its objective. Insofar as sustainable investments are made in the Fund, those investments in line with the EU Taxonomy which have set climate change mitigation as their environmental goals are considered sustainable investments. Climate change mitigation is promoted by investing in the options that meet the requirements of the EU Taxonomy.

Insofar as the Fund makes sustainable investments with climate change mitigation as the environmental goal, it is assessed in line with the EU Taxonomy that the investment does not cause significant harm to other goals following the EU Taxonomy. As part of the assessment, climate risk analysis is carried out for sustainable investments.

Sustainability indicators monitored include the production of renewable energy, energy efficiency, facilities for electric vehicles and the number of certified properties.

No sustainable investment objective

The aim is for the Fund to act as a long-term real estate investment vehicle for its investors, and it may execute transactions throughout its term.

The Fund promotes environmental and social characteristics by favouring flexible, energy-efficient properties that are suitable for more than one purpose. The Fund favours low-carbon options and invests in renewable energy production. The Fund places emphasis on the longevity and convertibility of properties in selecting investments as well as in construction and modernisation. The Fund seeks to promote sustainable mobility by building electric vehicle charging stations, secure bicycle parking, and additional social facilities for users.

This financial product promotes environmental or social characteristics, but sustainable investment is not its objective. Insofar as sustainable investments are made in the Fund, those investments in line with the EU Taxonomy which have set climate change mitigation as their environmental goals are considered sustainable investments. Climate change mitigation is promoted by investing in the options that meet the requirements of the EU Taxonomy.

Insofar as the Fund makes sustainable investments with climate change mitigation as the environmental goal, it is assessed in line with the EU Taxonomy that the investment does not cause significant harm to other goals following the EU Taxonomy. As part of the assessment, a climate risk analysis is carried out for sustainable investments.

Sustainability indicators monitored include the production of renewable energy, energy efficiency, facilities for electric vehicles and the number of certified properties.

Environmental or social characteristics of the finance product

The Fund promotes environmental and social characteristics by favouring flexible, energy-efficient properties that are suitable for more than one purpose. The Fund favours low-carbon options and invests in renewable energy production. The Fund places emphasis on the longevity and convertibility of properties in selecting investments as well as in construction and modernisation. The Fund seeks to promote sustainable mobility by building electric vehicle charging stations, secure bicycle parking, and additional social facilities for users.

Investment strategy

The aim is for the Fund to act as a long-term real estate investment vehicle for its investors, and it may execute transactions throughout its term. The objective of the Fund is to generate an annual return of at least 9% (IRR) on investments made by the investors. The Fund’s diversified real estate portfolio is built from investments selected on a case-by-case basis, in other words using the Bottom-up method. The Fund may use debt financing for its investments. Investment decisions are made by the general partner in accordance with the Fund agreement.

Insofar as the Fund can invest in companies, a qualitative analysis is made for these based on which the implementation of good governance is assessed. When assessing a company’s governance, some of the areas considered include the appropriateness of the company’s administrative organisation, the company’s actions in relation to its personnel, and the company’s rewarding and taxation practices. In addition, the company’s operations should be transparent. To the extent that the Fund invests in properties in alignment with the EU Taxonomy, its aim is to promote climate change mitigation.

Share of investments

The Fund’s investments promote environmental and social characteristics. At least 20% of the investments promoting environmental and social characteristics align with EU taxonomy and are thus also sustainable investments.

Other characteristics related to the environment or society cover investments promoting environmental or social characteristics and that are not considered sustainable investments and not aligned with EU Taxonomy.

The Fund’s other assets cover other investments in the financing product that do not promote environmental or social characteristics, and that are not considered sustainable investments. Other assets may comprise short-term net assets such as cash investments and derivatives used for interest rate hedging. Sustainability factors cannot be considered separately for derivatives.

The Fund does not have a minimum share of sustainable investments not in line with the EU Taxonomy. Additionally, the Fund has no minimum share of sustainable investments with social targets.

Monitoring of environmental or social characteristics

Sustainability indicators monitored include the production of renewable energy, energy efficiency, facilities for electric vehicles and the number of certified properties.

In addition to ESG indicators, the Fund seeks to promote pedestrian and bicycle traffic by building secure bike parking spots with charging stations, and additional staff facilities for users.

All of the Fund’s properties carry out energy monitoring, which provides up-to-date usage data and comparison with similar properties. An energy audit has been carried out at all of the Fund’s properties to ensure that building technology is being used properly and working as planned. The audits are renewed according to need.

The acquisition of new properties emphasises geographical sustainability and analyses the accessibility and convertibility of the property. When assessing convertibility, the property’s suitability for different tenants and purposes are evaluated. Factors that are taken into consideration include capacity for loading bays, load carrying capacity of floors in warehouse and production areas, clearance height, and the possibility of expanding the property in the future.

The Fund keeps in regular contact with the tenants of owned properties. The functionality of services and properties is ensured with tenant meetings and satisfaction surveys. Based on feedback, the properties are developed to better respond to tenants’ needs, such as by adding new electric vehicle charging stations to meet demand.

Methods

The production of renewable energy in invested properties is tracked based on the number of properties. Energy efficiency is tracked annually by calculating the average energy class according to energy performance certificates, with a weighting based on building volume. This indicator does not consider properties for which no energy performance certificate will be drawn. Capacity for electric vehicles is tracked based on the number of properties with EV charging stations. Sustainability indicators are identified for each new investment and reported annually in summary reports. 

Data sources and data processing

Data used to assess the materialisation of environmental or social characteristics is received from building permits and contract documents or from the contractor or seller of the property. In addition, data is obtained from official registers and other public sources. Data quality is ensured with a careful DD process. The ESG officer ensures in the investment decision proposal that ESG criteria are met. In addition, third-party service providers are used for monitoring and storing data related to the defined indicators. The assessment is made in the investment decision phase, when data on new developments is based on designs that precede the construction phase.

To the extent that the Fund may invest in other funds or companies, this data is collected in connection with the ESG DD of the investment to determine that the proposed investment takes sustainability risks sufficiently into consideration.

Limitations of the methodology and data

In construction projects, ESG assessment is made during the building permit phase, at which point details such as the building’s energy class are still subject to changes. Possible changes to the building’s construction method are always negotiated with the contractor, and the contractor may not unilaterally make changes to the building’s sustainability factors. The changes may not materially worsen the property.

In turn, ESG analysis of finished potential investments may contain inaccuracies because the seller does not always have access to comprehensive, up-to-date data on the property’s sustainability factors. The data is supplemented by DD audits by third-party experts and information obtained from public sources.

Due diligence

As part of the acquisition of new investments, an appropriate due diligence is carried out. The audit investigates, among other matters, predefined questions related to the investment’s sustainability. The investment decision is based on reports made in the DD audit phase and responses received from the seller or developer. The audit may also involve external technical specialists. Possible changes in construction projects are always discussed with the contractor. As part of the assessment during the investment decision phase, the investment is also screened for predefined exclusion criteria.

Shareholder engagement policy

The Fund’s portfolio manager, OP Real Estate Asset Management Ltd, does not draw up or publish its shareholder engagement principles. This is because the funds under its management do not invest in the shares of companies traded in a regulated market.

To the extent that the Fund may invest in other funds or companies, the Fund is an active shareholder by appointing a representative in the Fund’s or company’s bodies or by attending meetings of the relevant bodies, such as shareholder’s meetings, and by engaging in direct dialogue with the Fund or company.

Designated reference benchmark

No benchmark value has been set to achieve the environmental and social characteristics that the Fund promotes.

LEI ID 743700KYPJ1G53BGDN22

Summary
No sustainable investment objective
Environmental or social characteristics of the finance product
Investment strategy
Share of investments
Monitoring of environmental or social characteristics
Methods
Data sources and data processing
Limitations of the methodology and data
Due diligence
Shareholder engagement policy
Designated reference benchmark

Summary

The Fund invests in Finnish land or in businesses that own such land. The objective of the Fund is to sign long-term land leases with housing companies. The primary channel for purchasing land is construction firms, from which the Fund seeks to receive a rental cash flow before the construction phase so that after the residential development is completed, the rental cash flow is received from the housing company leasing the land. The intention is for housing companies to have the opportunity to purchase portions of the land.

This financial product promotes environmental or social characteristics, but sustainable investment is not its objective. The Fund promotes environmental and social characteristics by supporting sustainable urbanisation in the form of infill development and by favouring energy efficient solutions. The Fund invests in land in locations that enable the use of public transport and pedestrian and bicycle traffic. By providing an alternative financing solution for development land, the Fund facilitates the construction of healthy new homes and enables home ownership for a larger pool of buyers.

The sustainability indicators monitored include the average energy class of properties built on land purchased in the year under review, the production of renewable energy, and the number of homes built.

No sustainable investment objective

This financial product promotes environmental or social characteristics, but sustainable investment is not its objective.

Environmental or social characteristics of the finance product

The Fund promotes environmental and social characteristics by supporting sustainable urbanisation in the form of infill development and by favouring energy efficient solutions. The Fund invests in land in locations that enable the use of public transport and pedestrian and bicycle traffic. By providing an alternative financing solution for development land, the Fund facilitates the construction of healthy new homes and enables home ownership for a larger pool of buyers.

Investment strategy

The Fund invests in Finnish land or in businesses that own such land. Investments may be acquired as individual purchases or as purchases of portfolios. Investments may also be partially owned. The objective of the Fund is to sign long-term land leases with housing companies. The primary channel for purchasing land is construction firms, from which the Fund seeks to receive a rental cash flow before the construction phase so that after the residential development is completed, the rental cash flow is received from the housing company leasing the land. The intention is for housing companies to have the opportunity to purchase portions of the land 1-2 times a year at separately defined times.

Insofar as the Fund can invest in companies, a qualitative analysis is made for these based on which the implementation of good governance is assessed. When assessing a company’s governance, some of the areas considered include the appropriateness of the company’s administrative organisation, the company’s actions in relation to its personnel, and the company’s rewarding and taxation practices. In addition, the company’s operations should be transparent.

Share of investments

The Fund’s investments promote environmental and social characteristics.

Other assets may comprise short-term net assets such as cash investments and derivatives used for interest rate hedging. Derivatives or cash investments cannot be considered to promote environmental or social characteristics.

Monitoring of environmental or social characteristics

The sustainability indicators monitored include the average energy class of properties built on land purchased in the year under review, the production of renewable energy on the land and the number of homes built.

In addition to ESG indicators, the Fund tracks, among other things, the accessibility of investments by public transport. Accessibility is assessed with a scoring system based on distance to the nearest public transport stop (up to 1 kilometre or up to 500 metres) and the frequency of service during peak hours (up to 15 minutes) and the area’s accessibility on foot using a walk score tool. In addition, the Fund gives preference to in-fill development in existing urban structures or in its immediate vicinity.

Methods

The average energy class of buildings on the invested land is tracked annually by calculating the average energy class of new buildings according to energy performance certificates. This indicator does not consider properties for which no energy performance certificate will be drawn. The production of renewable energy is tracked based on the number of properties. The number of homes is reported for each investment. Sustainability indicators are identified for each new investment and reported annually in summary reports.

As the buildings are not owned by the Fund, sustainability indicators are not tracked after the investment decision. The heating method and energy category of properties is tracked based on energy performance certificates. The land lease agreements for new plots include a requirement that the tenant supplies the building’s energy performance certificate during the building permit phase and whenever the certificate is updated. For existing investments, information about the stated heating method and energy category in the construction phase has been collected before the investment decision.

Data sources and data processing

Data used to assess the materialisation of environmental or social characteristics is received from the contractor and are based on references or the building permit documents of the property in question. In addition, data is obtained from official registers and other public sources. Data quality is ensured with a careful DD process. The ESG officer ensures in the investment decision proposal that ESG criteria are met. In addition, third-party service providers are used for monitoring and storing data related to the defined indicators. The assessment is made in the investment decision phase, when data on new developments is based on designs that precede the construction phase.

Limitations of the methodology and data

In construction projects, ESG assessment is made during the building permit phase, at which point details such as the building’s energy class are still subject to changes. As the Fund owns the land but not the buildings, opportunities for influencing the building’s construction method are limited.

Due diligence

As part of the acquisition of new investments, an appropriate due diligence is carried out. The audit investigates, among other matters, predefined questions related to the investment’s sustainability. The investment decision is based on reports made in the DD audit phase and responses received from the seller or developer. The audit may also involve external technical specialists. Possible changes in construction projects are always discussed with the contractor. As part of the assessment during the investment decision phase, the investment is also screened for predefined exclusion criteria.

Shareholder engagement policy

The Fund’s portfolio manager, OP Real Estate Asset Management Ltd, does not draw up or publish its shareholder engagement principles. This is because the funds under its management do not invest in the shares of companies traded in a regulated market.

To the extent that the Fund may invest in other funds or companies, the Fund is an active shareholder by appointing a representative in the Fund’s or company’s bodies or by attending meetings of the relevant bodies, such as shareholder’s meetings, and by engaging in direct dialogue with the Fund or company.

Designated reference benchmark

No benchmark value has been set to achieve the environmental and social characteristics that the Fund promotes.

LEI ID 743700CJ52UC3TZ7JJ42

Summary
No principal adverse impact to a sustainable investment objective
Sustainable investment objective of the financial product
Investment strategy
Share of investments
Monitoring of sustainable investment objectives
Methods
Data sources and data processing
Limitations of the methodology and data
Due diligence
Shareholder engagement policy
Kestävän sijoitustavoitteen saavuttaminen

Summary

The Fund’s investments seek a systematic and measurable impact, primarily by investing in projects related to sustainable agriculture and forestry, renewable energy and financial institutions. The investments support efforts to mitigate and adapt to climate change, promote sustainable employment and ensure access to affordable and clean energy, while focusing on environmental and social risks, opportunities and impacts relevant for each sector and investee company.

The Fund’s potential investments are subject to an intensified assessment of environmental and social risks. Sustainability and related risks are assessed in relation to the IFC Environmental and Social Performance Standards (IFC PS) of the World Bank Group and the universal and sector-specific Environmental, Health and Safety Guidelines of the World Bank Group. In addition, to the extent that data on investee companies is available, principal adverse impacts (PAI) are analysed regularly as part of annual review and monitoring processes.

The preliminary assessment of the investment’s impact plays a significant role in the investment decision. In the assessment, the expected development impacts of planned projects are examined using qualitative and quantitative indicators that describe the investment’s opportunities to influence the realisation of sustainable development goals through direct and indirect business impacts

No principal adverse impact to a sustainable investment objective

Potential investments undergo a detailed environmental and social assessment, in which sustainability and related risks are examined in relation to the IFC Environmental and Social Performance Standards (IFC PS) of the World Bank Group and the universal and sector-specific Environmental, Health and Safety Guidelines of the World Bank Group.

In addition, to the extent that data on investee companies is available, principal adverse impacts (PAI) are analysed regularly as part of annual review and monitoring processes.

Sustainable investment objective of the financial product

The Fund’s investments seek a systematic and measurable impact, primarily by investing in projects related to sustainable agriculture and forestry, renewable energy and financial institutions. The Fund invests only assets that promote the objectives of the UN Sustainable Development Goals and which support efforts to mitigate and adapt to climate change, promote sustainable employment and ensure access to affordable and clean energy, while focusing on environmental and social risks, opportunities and impacts relevant for each sector and investee company. The Fund invests in business activities in countries classified by the OECD as developing countries

Investment strategy

Impact assessment: the preliminary assessment of the investment’s impact plays a significant role in the investment decision. In the assessment, the expected development impacts of planned projects are examined using qualitative and quantitative indicators that describe the investment’s opportunities to influence the realisation of sustainable development goals through direct and indirect business impacts. Such indicators include local climate solutions, number of new jobs created and other direct local economic impacts. The assessment makes use of data obtained in the project planning phase, assessment of environmental and social factors and other data, such as information about the target market.

Assessment of environmental and social risks: the Fund’s potential investments are subject to an intensified assessment of environmental and social risks. Sustainability and related risks are assessed in relation to the IFC Environmental and Social Performance Standards (IFC PS) of the World Bank Group and the universal and sector-specific Environmental, Health and Safety Guidelines of the World Bank Group. It is commonplace that when making the investment decision, the company’s operations do not yet meet all applicable standards. For this reason, the assessment must look at the company’s ability to develop its operations in the agreed timetable. Typically, the agreed measures are implemented within 1–3 years of the investment decision.

Principles of assessing good governance practices: the assessment of good governance is part of the ESG assessment. To us, good governance is a key foundation for any company’s financial success, regardless of sector. When assessing governance, some of the areas considered include the appropriateness of the investee company’s administrative organisation, the investee company’s actions in relation to its personnel, and the investee company’s taxation practices.

Share of investments

The Fund is an impact fund with the goal of making environmentally and socially sustainable investments in emerging markets. As such, the Fund consists of 100% sustainable investments.

The Fund might include investment options which are in line with the EU Taxonomy, but the Fund does not commit to a certain minimum number of investments in line with the EU Taxonomy. Currently, only few investment options in line with the EU Taxonomy are available, and there is a limited amount of reported information on compliance with the EU Taxonomy.

Monitoring of sustainable investment objectives

Relevant and agreed ESG indicators of the Fund’s investee companies are monitored in annual reporting. The Fund’s ESG indicators on top-level environmental and social characteristics are also reported on an annual basis. Reporting makes use of both visits to the investee companies and analysis by external experts.

Methods

Impact assessment: the assessment uses the Development Effect Assessment Tool (DEAT) developed by Finnfund. The tool is based on theories of change and is used assess the expected development impacts of planned projects using qualitative and quantitative indicators. The assessment makes use of data obtained in the project planning phase, assessment of environmental and social factors and other data, such as information about the target market. The assessment plays a key role in decision-making, and indicators for monitoring the investment are also collected in the preliminary assessment phase.

These indicators are used to measure, for example, the number or gender distribution of customers reached by a product or service, and are compatible with the IRIS metrics of the Global Impact Investing Network (GIIN).

Data sources and data processing

Data on investments is received directly from investee companies and is based on analysis by the company and/or external experts

Limitations of the methodology and data

At the moment, ESG data is not fully standardised, and investee companies do not report on the data widely. This is particularly true for emerging markets, which makes it challenging to compare investee companies.

Due diligence

As part of the acquisition of new investments, an appropriate due diligence is carried out on issues such as the ownership of the investment. A party independent of portfolio management oversees that the Fund complies with the criteria.

Shareholder engagement policy

The Fund does not have public shareholder engagement principles. The Fund’s advisor Finnfund engages in direct dialogue with companies, participates in the work of the boards of directors of investee companies (private equity investments) and meetings of advisory bodies (mutual fund investments).

Achieving a sustainable investment objective

The Fund has no benchmark index.

LEI ID 74370073FNU739HQXT78

Summary
No sustainable investment objective
Environmental or social characteristics of the finance product
Investment strategy
Share of investments
Monitoring of environmental or social characteristics
Methods
Data sources and data processing
Limitations of the methodology and data
Due diligence
Shareholder engagement policy
Designated reference benchmark

Summary

The Fund's goal is to make sustainable investments. The Fund's assets are invested in companies that have a positive impact on the environment and/or society. The positive impact sought by the Fund is defined according to activities in line with the UN Sustainable Development Goals or the EU Taxonomy, among others. The Fund achieves its sustainability target by investing in companies whose activities partly concern products or services that promote the UN Sustainable Development Goals, and/or whose activities are aligned with the goals of the EU Taxonomy. The Fund may also invest in thematic bonds (green, social or sustainability bonds). Funds in green bonds are used to promote sustainability targets related to the environment, funds in social bonds are used to promote sustainability targets related to society, and funds in sustainability funds must be used to promote sustainability targets related to both the environment and society.

Those investment options whose business promotes one or more UN Sustainable Development Goals (SDG) without harming other sustainable factors or goals are considered sustainable investments. Sustainable investments are determined using OP Asset Management’s analysis model based on SDG and EU Taxonomy alignment data and green revenues data by external service providers, among other sources. The sustainable investment model can be supplemented with manual analysis performed by the portfolio manager. In the case of this Fund, manual sustainability analysis is part of fundamental analysis of the investment and can be used to adjust the results of automated sustainability analysis, to identify the positive environmental contribution of thematic bonds, and/or to achieve societal sustainability goals.

Principal adverse impacts (PAI) on sustainability are regularly analysed by screening all investments for their PAI indicators. If the screening reveals investee companies with significant principal adverse impacts on sustainability in comparison to peers and if the said PAI indicator is deemed essential for the investee company, the investee company will be monitored more closely and excluded, if necessary. Also, a process to influence the company’s behaviour can be started.

OP Asset Management uses several data sources from different service providers. Primary data sources are MSCI ESG Research and S&P Trucost, which provide information on topics such as the sustainability risks of investee companies, share of business operations with adverse impacts, climate risks and opportunities, and how the operations of investee companies align with UN Sustainable Development Goals. The service providers use both data reported by companies and estimates based on an assessment model developed by each service provider.

No sustainable investment objective

The OP Asset Management’s sustainable investment analysis model is used to check whether a company has violated international standards (UN Global Compact and OECD guidelines for multinationals). If a violation is identified, the company cannot be determined as a sustainable investment. The definition of international standard violations and company-specific analysis is based on the methodology of a third-party service provider.

In addition, principal adverse impacts (PAI) are analysed regularly by screening investments against all PAI indicators listed in Annex 1, Table 1 of the SFDR RTS, as well as additional indicator #4 of Table 2 and additional indicator #14 of Table 3 using OP Asset Management's internal PAI tool based on data from an external service provider. If the screening reveals companies with significant principal adverse impacts on sustainability in comparison to peers, and if the said PAI indicator is deemed essential for the investee company, the investee company will be monitored more closely and excluded if necessary, or a process to influence the company's behaviour can be started. Portfolio managers use the PAI tool to determine the values of the company and line of business, and this data is used when making investment decisions.

More information about how we take adverse sustainability impacts into account can be found in the document ""Consideration of Principal Adverse Sustainability Impacts in Investing and Insurance Operations (in Finnish)"", which is available online at op.fi.

Environmental or social characteristics of the finance product

OP-Sustainable Corporate Bond is a long-term bond fund which mainly invests its assets in euro-denominated bonds issued by companies with a high credit rating that are located in OECD countries. Most of the Fund's assets are invested in securities of issuers whose long-term creditworthiness has been rated as at least BBB- or comparable.

Sustainable investments: the Fund’s assets are invested in bonds issued by companies with a positive environmental impact and/or to achieve societal sustainability goals. The Fund can also invest assets in thematic bonds issued in order to achieve environmental or societal sustainability goals. For example, the Fund invests in companies whose activities concern products or services that promote the UN Sustainable Development Goals, and/or whose activities are aligned with the goals of the EU Taxonomy.

Those investment options whose business promotes one or more UN Sustainable Development Goals (SDG) without harming other sustainable factors or goals are considered sustainable investments. Sustainable investments are determined using OP Asset Management’s analysis model based on SDG and EU Taxonomy alignment data and green revenues data by external service providers, among other sources. The sustainable investment model can be supplemented with manual analysis performed by the portfolio manager. In the case of this Fund, manual sustainability analysis is part of fundamental analysis of the investment and can be used to adjust the results of automated sustainability analysis, to identify the positive environmental contribution of thematic bonds, and/or to achieve societal sustainability goals.

Investment strategy

OP-Sustainable Corporate Bond is a long-term bond fund which mainly invests its assets in euro-denominated bonds issued by companies with a high credit rating that are located in OECD countries. Most of the Fund's assets are invested in securities of issuers whose long-term creditworthiness has been rated as at least BBB- or comparable.

Sustainable investments: the Fund’s assets are invested in bonds issued by companies with a positive environmental impact and/or to achieve societal sustainability goals. The Fund can also invest assets in thematic bonds issued in order to achieve environmental or societal sustainability goals. For example, the Fund invests in companies whose activities concern products or services that promote the UN Sustainable Development Goals, and/or whose activities are aligned with the goals of the EU Taxonomy.

Investee companies are screened using OP Asset Management’s analysis model, which is based on an external service provider’s SDG and sustainability data. Companies whose business promotes one or more UN Sustainable Development Goals (SDG) without harming other sustainable factors or goals are considered sustainable investments.

Exclusion: The Fund excludes from its active direct investments controversial weapon manufacturers, mining companies producing thermal coal, power companies using thermal coal, tobacco companies, and companies that have breached international standards, and where engagement has been unsuccessful. The list of exclusions is public. In addition to general exclusion rules, the Fund does not invest in companies whose principal business is in unconventional oil and gas extraction or other fossil fuels (50% of revenue or more).

Violations of international standards: The Fund is screened regularly for non-compliances with international standards. In the event that a non-compliance is detected, an influencing process is begun with the company in question. The aim is to make non-compliant companies change their practices and begin to comply with international standards in their operations. If influencing proves fruitless, the company may be removed from the Fund portfolio and placed on the exclusion list.

Methods for assessing good governance practices: Analysing the target company’s governance is an important part of the investment process. For us, good governance is a key foundation for any company’s financial success, regardless of sector. When assessing governance, some of the areas considered include the appropriateness of the target company’s administrative organisation, the target company’s actions in relation to its personnel, and the target company’s rewarding and taxation practices. In assessing good governance, we use an external service provider’s analysis and our own qualitative analysis if no external data is available. We screen the funds regularly using good governance criteria with minimum thresholds.

Share of investments

The fund engages exclusively in sustainable investments. If necessary, the fund may also invest its assets in exchange traded derivatives and OTC derivative contracts in order to hedge against the risk of adverse market movements, to replace direct investments and to otherwise promote effective portfolio management. However, the share of sustainable investments is always at least 75%.

Monitoring of environmental or social characteristics

Portfolio managers have access to the fund’s ESG analysis, which indicates, among other things, the weighted ESG rating, carbon intensity and share of green business of the portfolio. In addition, the portfolio manager regularly monitors the share of sustainable investments in the Fund.

Investments are regularly screened by ESG specialists for principal adverse impacts (PAI), exclusion criteria and international standard violations.

Fund-specific ESG indicators on top-level environmental and social characteristics related to the Fund are reported on a monthly basis.

Methods

The internal model developed by OP Asset Management for defining sustainable investments also provides relevant company-specific ESG data and gives an estimate of the company’s sustainability. Those investment options whose business promotes one or more UN Sustainable Development Goals (SDG) without harming other sustainable factors or goals are considered sustainable investments. The Fund’s proportion of sustainable investments is reported annually in periodic reports, in addition to which portfolio management has access to data updated on a monthly basis on the share of sustainable investments of the Fund’s portfolio.

External ESG data can be used to examine the investee company’s targets for GHG emission reductions or current state in terms of the green transition.

Negative screening is used to limit and exclude certain sectors and operations from the Fund’s investments. The Fund excludes from its active direct investments controversial weapon manufacturers, mining companies producing thermal coal, power companies using thermal coal, tobacco companies, and companies that have breached international standards and where engagement has been unsuccessful. The list of exclusions is public. In addition to general exclusion rules, the Fund does not invest in companies whose principal business is in unconventional oil and gas extraction or other fossil fuels (50% of revenue or more). In addition to ESG tools applied to the investee companies, portfolio managers have access to fund-specific reports on ESG issues at the portfolio level.

The Fund’s investments are also screened regularly for violations of international standards using an external service provider’s analysis. If a standard violation is detected, the preferred option is to influence the company’s behaviour. If that is impossible or unsuccessful, the company may be removed from the Fund portfolio and placed on the list of exclusions. Identified standard violations and their related engagement processes are reported twice a year in connection with shareholder engagement reporting. In addition to ESG tools applied to the investee companies, portfolio managers have access to fund-specific reports on ESG issues at the portfolio level. The reports allow portfolio managers to view the Fund’s weighted ESG rating, carbon intensity and share of green business, among other data. These values are also presented in comparison to benchmark indexes.

Data sources and data processing

OP Asset Management uses several data sources from different service providers. Primary data sources are MSCI ESG Research and S&P Trucost, which provide information on topics such as the sustainability risks of investee companies, share of business operations with adverse impacts, climate risks and opportunities, and how the operations of investee companies align with UN Sustainable Development Goals. The service providers use both data reported by companies and estimates based on an assessment model developed by each service provider.

The service providers we use have detailed and appropriate processes in place for ensuring data quality and correcting inaccuracies in the data.

When selecting new data packages and service providers, we carefully compare and analyse the data quality, coverage, methodology and reliability of each service provider. We regularly monitor trends in ESG data and service providers on the market to ensure the best possible data to support our investment decisions and client reporting.

Data sources are utilised either directly based on metrics or analysis by the service provider as well as by combining different metrics and using them for internal analyses and assessments by OP Asset Management. A part of the data is imported directly to OP Asset Management’s database, from which it can be used in internal analysis models and reports. Data is also used directly from interfaces offered by the service providers.

The share of data that is assessed depends on sustainability indicators and the sustainability factor under scrutiny, and it is not possible to give a universal definition of the share of assessed data of all ESG data. It is difficult to determine what portion of ESG data are based on reported information and estimates, respectively. In cases where reported data is available, it is used as the primary source. Third-party service providers must specify for each metric whether the data is reported by companies themselves or estimated using the provider’s internal model.

Limitations of the methodology and data

At the moment, ESG data is not fully standardised, and investee companies do not report on the data widely. This makes it challenging to compare investee companies. Service providers may use different methods for compiling, evaluating and analysing data. For these reasons, we carefully review the methodologies of service providers to ensure their suitability for our purposes.

We use several different service providers to enable us to assess certain metrics from multiple sources and plug any gaps in data.

Due diligence

The Fund's sustainable investment model is automated, and the manual analysis process is limited in scope in writing and carried out by the portfolio manager in writing. Sustainable investments are screened and reported regularly. The Fund is also subject to exclusion criteria and screened for international standard violations as described above in part (d) Investment strategy. A party independent of portfolio management oversees that the Fund complies with the criteria. The Fund’s material exclusion criteria are implemented in the trading system.

Shareholder engagement policy

OP is an active shareholder through its funds by voting in Finnish and international shareholders’ meetings, engaging in direct dialogue with companies and supporting joint initiatives by investors. OP's funds comply with the principles of shareholder engagement that take into account OP Fund Management Company Ltd’s ESG perspectives. These principles and the latest report on the implementation of shareholder engagement principles are available at https://www.op.fi/responsible-investing. Participation in general meetings of foreign companies takes place in markets where participation is cost-effective, taking into account their proportion of the Fund’s investments.

By 2025, OP Asset Management’s climate-related shareholder engagement will cover 70% of financed emissions, as measured by direct equity and bond investments by OP funds in high climate risk sectors (NACE categories A-H and J-L).

In practice, shareholder engagement in these companies involves either voting at shareholders’ meetings, direct dialogue or joint initiatives by investors. In addition, the Fund is involved in shareholder engagement more broadly where necessary, such as in relation to good governance, responsible tax practice or business ethics.

Designated reference benchmark

All the Fund's underlying investments must be sustainable in accordance with the criteria set by OP Asset Management. The portfolio manager regularly monitors the sustainability criteria of the Fund's investments. All the Fund's investee companies must engage in activities that support sustainable wellbeing for people and societies, while accounting for the environmental impact of the investments’ business operations, such as climate goals. Sustainability indicators include the share of services and goods producing social wellbeing solutions as a proportion of the company's total revenue and/or the company's success as an employer in a given social issue.

In addition, the Fund is committed to the climate targets of OP Asset Management and even though these do not constitute the Fund's main investment goal, climate targets are binding on all funds managed by OP Asset Management.