The reporting of emission calculations may give a misleading impression of the actual emission reductions, an attribution analysis of emissions calculations from Varma has found.

The Finnish pensions firm explained that institutional investors could reduce emissions through strategic allocation changes, such as adjusting the share of different industries in their investment portfolios and selecting companies within the portfolio that operated more cleanly within their own industry compared to competitors.

For example, an investment portfolio's emissions can be reduced by divesting from carbon-intensive industries within the portfolio and replacing them with investments in other sectors.

However, the actual effects of the change may not be very large.

"Individual investor allocation changes have no impact on companies' actual greenhouse gas emissions," claimed Varma development manager for responsible investment, Vesa Syrjäläinen, "and simply replacing companies engaged in industrial business with financial companies makes the portfolio look significantly better in terms of carbon footprint without having any real-world impact."

He urged that when assessing the actual changes in emission reductions, "primary attention" should be paid to investments that have remained in the portfolio.

Varma noted that another significant challenge in emissions calculations was the varying quality of available data.

Data is not available on all asset classes in the same way, and changes in calculation methods also pose challenges in comparing data.

An attribution analysis of Varma's emissions calculations revealed that emissions from Varma's investments decreased by 46 per cent in 2024 compared to 2022.

However, the actual emission reductions from investments that remained in the portfolio only accounted for 6 per cent of the total change.

The figure primarily reflected changes in listed investments, as data for other asset classes were not available in 2022.

"In our own analysis, we noticed that most of the changes in the portfolio were due to factors other than actual emission reductions achieved by the companies," Syrjäläinen explained.

"The reduction in the carbon footprint of Varma's investments in 2022-2024 was mainly due to changes in the emission factors and assessment methods used," he continued.

"In addition, investments in share sales were replaced with low-emission investments."

Therefore, Syrjäläinen stated that it was necessary to open up the methods and raise issues, even if the analysis results are not always desirable for the company.

"Improved transparency also provides a better opportunity to see how much of the emission reductions are due to calculated factors, he added.

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