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Finnish pension funds linked to alcohol, weapons and tax havens

Finnish pension funds have not purged so-called sin stocks from their portfolios.

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Finnish pension funds have invested with offshore hedge funds, according to Yle's Swedish-language investigative programme Spotlight. Image: MOT / ICIJ
Yle News

Those who run Finland's pension funds largely decide for themselves what responsible investments are, according to an Yle investigation.

Yle's Swedish-language investigative programme Spotlight examined three public pension firms: the State Pension Fund of Finland (VER), municipal pension provider Keva and the Church Pension Fund (KER).

These pension firms are economic heavyweights, managing assets totalling around 75 billion euros.

Spotlight found that the three funds generally follow a global trend that encourages institutional investors to scrutinise the social and environmental impacts of their investments—but in practice, their polices diverge quite a bit. Responsible investing generally refers to institutional investors taking environmental, social and governance (ESG) factors into consideration.

The Church Pension Fund has, for example, divested from all coal and oil industry holdings—a move the other two main funds have not made.

"We don't invest in coal companies but we still have our investment in Neste which develops renewable fuel from waste, which I consider responsible action,” outgoing State Pension Fund CEO Timo Viherkenttä said, referring to the oil and gas firm which is half-owned by the Finnish state.

Sin stocks

Ira van der Pals, portfolio manager for the Church Pension Fund, said the fund has decided to stay away from certain industries.

"These include tobacco, weapons, pornography, gambling and alcohol as well as fossil fuels," van der Pals explained.

The State Pension Fund VER said it consults a similar list of banned industries in its decision-making. However municipal provider Keva takes a different approach.

"We've only ruled out unethical weapons," Keva's senior portfolio manger Anette Eriksson said.

Unethical weapons include land mines and cluster bombs.

"We would rather try to influence companies than exclude them," she explained.

Spotlight found many alcohol firms in Keva's portfolio, including some of the largest producers in the world. The group's portfolio includes Diageo, which markets booze brands like Smirnoff, Johnnie Walker, Baileys and Guinness - as well as the alcohol corporations Pernot Ricard and Anheuser-Busch.

"Our job is to ensure profits on investments, so we can afford to pay out pensions today, tomorrow and 50 years from now," Eriksson explained.

Tax havens

The three pension funds control assets totalling one-and-a-half times Finland’s state budget. They invest in stocks, funds, real estate and other financial instruments. They also park money in high-risk hedge funds—often domiciled in offshore jurisdictions with minimal taxation.

"I wish they would be domiciled somewhere other than tax havens, but this is the situation," Viherkenttä said.

"We have no control over where hedge funds incorporate,” Keva's Eriksson pointed out.

Spotlight said it was problematic that hedge funds are opaque about their investment targets.

"The [hedge fund's] portfolio managers decide where to invest," Viherkenttä revealed.

However, he said Finland's State Pension Fund (VER), receives investment updates from hedge funds, though not in real time.

"We have a long-standing relationship with hedge fund portfolio managers who have assured us that they act in accordance with our principles," Eriksson from Keva said.

Murky oil firm in church portfolio

The investigating reporters found that the Church’s Pension Fund in 2018 worked with a hedge fund which had invested in the Brazilian state oil firm Petrobras, a company that has been fined by regulators for graft schemes.

Van der Pals, however, said the church had now divested from that particular fund. She underscored that the Church Pension Fund no longer uses hedge funds associated with tax havens.

The State Pension Fund and Keva meanwhile had no issue about offshore hedge funds. While the share of Finnish pension funds which are in hedge funds are relatively small—around two to four percent—the value of their holdings still reach into the hundreds of millions of euros.

Finnwatch critical

Finnish pension funds are not liable to pay taxes on profits under Finnish law. But human rights NGO Finnwatch urged Finish pension funds to pay more attention to the taxation polices of the funds they employ.

"Even though Finnish pension funds don’t pay tax on their profits, they should take steps to ensure the companies they share ownership in do pay taxes in Finland and elsewhere," Saara Hietanen, a tax specialist at Finnwatch, said.

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