Annual Report 2012

Responsible investment

In responsible investing, investors take into account the risks and opportunities of environmental, social and corporate governance issues in addition to the conventional economic perspective.

FII's responsible investment principles

In April 2011, FII's Board of Directors confirmed the company's principles for responsible investment:

  • FII believes in the positive economic impact of responsible investment and corporate responsibility, both in portfolio companies and in its own operations.
  • FII is a responsible investor that addresses factors relating to the environment, civil society and corporate governance in making investment decisions, managing portfolio companies and asset management.
  • FII is dynamic and proactive in its responsible investment activities, and operates together with other investors, management companies, portfolio companies and other stakeholders.
  • Responsible investment is addressed as a part of Finnish Industry Investment’s investment process. Responsible investment activities are constantly developed and seen as part of business planning.

FII requires that its portfolio companies address corporate responsibility issues in their operations. FII supports its portfolio companies in managing and increasing awareness of corporate responsibility. In responsible investing, if aware of a deficiency an investor's primary aim is to persuade the portfolio company to change its operating methods using incentives. Generally, the portfolio company is willing to change its ways, and often the investor's own experience can assist it in doing so. The possibility of influencing portfolio companies operations varies greatly from company to company, as the emphasis on each aspect differs between sectors and geographical areas.

FII manages Finnish institutional investors' funds and also in this regard follows the principles of responsible investment and seeks the best possible financial result.

Responsibility in different investment areas

FII's responsible investment approach involves concentrating on material issues, influencing actively and constructively where possible, and working together with stakeholders. These principles are applied in all investment activities, which can be divided into three categories:

  • investments in funds,
  • investments directly in portfolio companies,
  • and asset management.

Criteria for responsible investment are integrated into the company's investment and decision-making processes. Responsibility is seen as part of good corporate governance. There are two equally important aspects of responsible investment: identifying new business opportunities and risk management.

Fund investments

The private equity funds in Finnish Industry Investment's portfolio are managed by external management companies. The funds also have a number of other investors. When making an investment decision to a fund, FII takes a stance on the management company's approach to responsible investment and corporate responsibility issues. In addition to responsible investment, FII also examines responsibility issues in the management company's own corporate activities. FII specifies its responsible investment principles in contract documentation.

FII maintains regular contact with the funds in its portfolio. In this way FII ensures that a management company is aware of FII’s responsible investment policy and operates accordingly. Through the discussions, FII tries to ascertain the level of responsibility in a fund manager’s investment policy, to get insight into any challenging investments in the portfolio, and to encourage development. Over the operating period of a fund, FII monitors the development of the fund manager’s corporate responsibility and responsible investment policies, and engages in active dialogue to enhance both parties’ knowledge of the issue.

In 2012 FII focused on maintaining and deepening discussion relating to responsible investment in the various phases of the investment process. Such dialogue increases general awareness of responsible investment and encourages practical application of its principles. At this stage the company does not yet require reports from funds concerning their corporate responsibility affairs. A reporting framework will be formulated over the next few years.

Case: Northzone VI L.P.

Finnish Industry Investment has made a 7.5 million euros commitment in Northzone VI L.P. in 2010. The Fund focuses on Nordic early-stage technology investments. Autumn 2012 Finnish Industry Investment initiated a dialogue about the issue of responsible investment with the Northzone team. Based on these discussions Northzone has started its own process to create principles of responsible investment and formalize them as part of their investment activities. Northzone believes that incorporating principles of responsible investment into their investment policy will further strengthen their franchise.

Direct investments

In direct investments Finnish Industry Investment invests directly in an individual company. The aim is to follow the principles of responsible investing throughout the entire investment process. When making an investment decision FII takes a stance on how the company in question addresses corporate responsibility issues. Any needs for influencing are explored in the investment phase. In all contract documentation FII specifies the responsible investment principles that it pursues. If there are any significant corporate responsibility issues in the company's operations, they can be specified in contracts.

Responsibility issues are included in the constant dialogue with a portfolio company. As an active owner, FII attempts to influence the way a company handles its corporate responsibility issues as a part of normal board work. For example, the mining sector's special characteristics create a specific need for taking environmental responsibility into consideration. FII has encouraged the mining companies in its portfolio to exercise responsibility by appointing Board members who have solid experience in environmental issues.

The process for integrating the principles of responsible investment into the investment process was continued in 2012. Activities during the year aimed at enhancing expertise in the different facets of responsible investment. The company has also utilised external consultants to boost personnel skills in responsible investment.

Case: Suominen Corporation

Finnish Industry Investment subscribed for Suominen Corporation shares in 2011. Suominen supplies industry and retailers with nonwovens, wet wipes and flexible packaging for use in consumer products that people use every day. The company is a global market leader in nonwovens for wipes and a significant player in wet wipes and flexible packaging in Europe.

FII raised the subject of corporate responsibility in discussions between the companies. Partly due to this, Suominen published its corporate responsibility report for 2012. Suominen has also decided to establish a shareholders' nomination committee, which will formulate proposals for the selection and remuneration of members of its board of directors.

Asset management

FII's liquid assets, i.e. assets not yet committed to venture capital and private equity investments, are managed by external asset managers. The asset managers are informed of FII's responsible investment principles and procedures and the asset managers are committed to following a responsible investment policy.

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