Much of the discussion in past years has focused on climate change and emission reductions. While that is important, it is a too narrow definition of environmental sustainability. Human activity is beyond the sustainable limits on at least four of the nine planetary boundaries identified by scientists: biodiversity loss, chemical and plastics pollution, nutrient pollution and greenhouse gas emissions. On another two, forest cover loss and freshwater consumptions, we are close to the limit. Looking at projections for 2030, only seven years out, further decline is expected.
If we continue on the current path, irreversible negative environmental changes affecting people and societies across the globe will exacerbate. The estimated scale of investments and financing needed to turn the tide is massive. To achieve the transition in an affordable way, we believe we need to both take a more holistic approach towards resource efficient, circular and nature positive business models and do it in a way that is not only economically viable but value creating. Needless to say, this transition must be just and equitable throughout the value chain and society.
We firmly believe that active ownership enables financial success and advancing sustainability in a comprehensive manner. Through our investments across private equity, infrastructure and real estate we take an active role in the transition of the broader economy and society, i.e., everyday products and services, utilities and properties, towards more sustainable operating models. We build better organized, managed and financially stable companies that contribute to overall economic well-being while reducing the negative impacts on the environment and societies. When done responsibly, these efforts result in more jobs and innovations which in turn create better conditions for society overall. Similarly, through real estate and infrastructure we contribute to functional high-quality environments and utilities that form the cornerstones for functioning societies. This is how we simultaneously create value for investors, shareholders and society at large.
“Our handprint is significant and we want to use it to contribute to the transition towards a long-term sustainable society.”
We manage more than €5 billion in assets on behalf of our investors. The returns from our funds contribute to the well-being of more than 10 million pension beneficiaries around the world. In 2022 the combined portfolio of our investments included 40 companies, with an aggregated turnover of € 2.4 billion and almost 15,000 employees, and more than 220 properties, covering in aggregate 1.8 million square metres and servicing almost 9,000 tenants. Through our investments we influence decisions and development of the companies, infrastructure and real estate assets, thereby shaping the Nordic communities and environments where these businesses are active.
We have the vision to be the most responsible Nordic private asset company. We want our sustainability work to be based in science, systematic and focused on material issues. The long-term ambition is to develop pragmatic, measurable approaches to transition companies and assets towards resource efficient, circular and nature positive operating models that promote inclusive workplaces and respect human rights throughout their value chains. In this way, we reduce negative impacts and enhance positive impacts on the planetary boundaries in a responsible manner while creating strong financial returns.
In line with our vision, we have made the conscious decision to not only invest in already sustainable assets, as we believe we can create more value by supporting the development and transition towards sustainable operating models across industries and sectors.
To reach the vision, we are in practice working in parallel on three different levels: developing the long-term circular and nature positive approaches, taking actions to meet mid-term goals like setting and following ambitious emission reduction targets, while simultaneously investing the time and legwork needed in the short-term to build the capabilities within CapMan and in our portfolio to sustain change, and meet the increasing demand for transparency and reporting.
The task to tackle sustainability and financial returns in sync is not easy. To succeed we need to tap into broad talent pools and manage to attract, retain and develop expertise across functions and industries. This is only possible if we meet the employee expectations on diverse, equal and inclusive work communities, and truly provide equal opportunities for our employees and those of our portfolio companies.
In 2022 we achieved several key milestones
In 2022 we established our materiality framework to ensure our work is systematic and focused on what matters. Through assessing the double materiality of CapMan’s own operations and that of our portfolio we derived three focus themes for which we set metrics and targets: Climate conscious and resource efficient operations, Meaningful work in an inclusive workplace, and Accountability, transparency and executive level diversity.
In 2022 CapMan committed to the Science Based Targets initiative (SBTi) and our greenhouse gas emission reduction targets were validated in early 2023. We have committed to reduce more than half our Scope 1 and 2 emissions by 2032. Scope 3 includes our investments, which is where we have the largest impact in absolute terms, by far. All our eligible private equity and infra assets will establish SBT validated emission reduction targets by 2032, and by the same year we will achieve emission reductions in our real-estate portfolio with up to 70% per square-metre compared to 2021. By the end of 2022, already 3 portfolio companies, corresponding to 11% of our portfolio, have SBT validated targets, and several more are under development.
In addition to climate-related initiatives, we have made progress in employee well-being and support the realisation of a diverse work environment in practice. We have set up a working group with the task to recognise and develop themes that relate to diversity, equity and inclusion at CapMan. We have formally integrated the protection of human rights in our external and internal policies following our ongoing commitment to the UN Global Compact. These policies include our Code of Conduct as well as our new Supplier Code of Conduct that we launched in the beginning of 2023 and implement in our contracts going forward. Additionally, sustainability factors are part of variable remuneration for our employees, and elements related to sustainability have been integrated in the performance targets for almost every employee starting from 2023. CapMan also became the first Finnish company to issue and list a sustainability-linked bond, tying the bond’s returns to sustainability performance goals.
“Continuous capability building is key to keep up progress.”
During 2022 we further integrated ESG aspects in the update of the ESG Investment Policy and the introduction of CapMan’s restriction list. We also updated our ESG due diligence and value creation tool, enabling the assessment from restricted sectors, adverse impact and risk factors to materiality and value creation opportunities. In early 2023 this was followed with an onboarding process for portfolio companies, creating a structured approach for sustainability work throughout the holding period; from putting in place policies to supporting the validation and executing of emission reduction targets, and strategic value creation initiatives. In 2023 the capability building program has continued with the launch of CapMan’s ESG Academy open for all our employees and convening monthly around topical sustainability matters.
We create the path while walking it
While our sustainability work has taken great strides forward, we recognise the challenges we face. The fast evolving, but in many places still lacking systematic standards and regulations are challenging for any organization to keep up with. We welcome these developments and remain steadfastly committed to our vision of becoming the most responsible Nordic private asset company. Since we invest in small and mid-sized assets, we are often the first institutional owner. As a result, at our entry, measurements and data are usually incomplete, if not totally lacking, with local resources and capabilities constrained. We do not shy away from this; we are ready to roll up our sleeves and create the change that we want to see.
Building a more sustainable future cannot wait. Therefore, we rather take action and create positive change based on an informed yet incomplete picture, than wait for perfect metrics and established standards. As a consequence, when our experience and expertise grow, we remain open to continuously update and improve our approaches, metrics and targets.
While not easy, it is truly exciting! We look forward to continuing to work together with our highly skilled employees and stakeholders to create sustainable value for our investors, shareholders and the society.
Head of ESG