Finnish earnings-related pension provider Varma has revised its responsible investment principles to enable “productive and secure investment” in new business opportunities developing around the defence sector.

The defence sector has become increasingly diversified, with innovation driving the emergence of new business models. Modern defence technologies, particularly in areas such as satellite systems, software development, and dual-use applications, are now viewed by Varma as vital contributors to societal resilience and technological progress.

“The industry is taking major technological leaps forward. Companies previously unconnected to the defence technology industry are benefiting from its transformation. By updating our principles, we ensure that as investors we can be part of this development,” Varma executive vice president, Markus Aho, said.

Varma is not the only pension fund to have changed its policy, as other funds, such as PFA, AkademikerPension, AP Pension, and P+ in Denmark, have all recently expressed their views on the sector.

Varma’s updated approach acknowledges that products and services for national defence are frequently supplied by firms across a broad array of sectors, including vehicle manufacturing, aerospace, logistics, infrastructure, telecommunications, and information technology.

Under the revised guidelines, Varma will continue to exclude from its direct investments any company involved in the manufacture of controversial weapons if the company is not headquartered in a NATO member state, Switzerland, or one of the IP-4 countries (Japan, South Korea, Australia, or New Zealand).

Importantly, the defence industry will remain subject to Varma’s robust due diligence framework as outlined in its responsible investment principles. Portfolio managers are required to conduct heightened scrutiny when assessing companies within this sector, similar to the treatment of industries with exposure to climate and environmental risks.

The update marks an evolution from previous guidance, where investments were at times ruled out due to indirect involvement with restricted weapons systems, such as companies producing software or components that could be repurposed for military use.

“Earlier guidance may have led to situations where a company was not invested in because a component or software it manufactured might be related to the manufacture of weapons restricted by arms control treaties,” Varma director of corporate responsibility, Hanna Kaskela, said.

---