Risk assessment

At Finnfund, we believe that conducting business in a responsible manner is not only a wise decision but also beneficial.

Responsible and environmentally, socially, and economically sustainable business practices can boost the operational and financial performance of a company, enhance employee wellbeing and commitment, and bring a competitive advantage.

These practices also improve a company’s risk management capacity, helping to mitigate unexpected risks and impacts, enhance cooperation with stakeholders, and strengthen the social licence to operate.

Our sustainability approach Finnfund’s overarching Sustainability Policy guides the assessment and management of sustainability within investments. It covers environmental, social and governance issues, as well as the impact created through sustainable business practices.

The Sustainability Policy is accompanied by several thematic statements on, for example, human rights, gender equality, climate and energy, and responsible tax, as well as adopted internal guidelines and tools to support implementation.

Sustainability in Finnfund’s investment process

At Finnfund, every investment has three criteria: impact, profitability and sustainability. Each investment is assessed on the basis of these criteria before the investment decision, and the investment is assessed and monitored over the entire life cycle.

Finnfund investee companies must commit to our sustainability requirements. Environmental sustainability, social responsibility and corporate governance (ESG) are incorporated into every stage of our investment process, from identification of potential investments to ongoing monitoring.

Finnfund concentrates on the key ESG impacts, risks, and opportunities relevant for each project. The more significant the risks and anticipated adverse impacts, the stricter the requirements become and the more closely Finnfund monitors each project.

Finnfund applies specific procedures for environmental and social due diligence, management, and monitoring, as well as corporate governance, corruption, and taxation matters. All are integrated into the investment process and codified in our internal guidelines.

We adopt different procedures for direct and indirect investments, as well as for different financing instruments. We actively support and assist our investees in developing their sustainability policies and processes, and we monitor them to ensure they take corrective action if discrepancies are found between their practices, commitments, and the actual situation on the ground.

International standards, frameworks, and best practices

Finnfund requires its investees to comply with Finnfund’s Exclusion list, applicable host country laws and regulations, and relevant international obligations, including the ILO core labour standards and conventions on basic terms and conditions at work.

In addition, all Finnfund investments associated with medium to high inherent environmental and social risks and adverse impacts are required to achieve compliance with international standards on environmental and social management and performance, over a reasonable time period. The nature of a project and its associated negative impacts and risks define which standards apply to it.

The principal environmental and social risk management framework defining Finnfund clients’ responsibilities for managing their environmental and social risks is the IFC Performance Standards on Environmental and Social Sustainability (IFC PS) with the associated World Bank Group general and industry-specific Environmental, Health, and Safety Guidelines.

Other relevant international standards and principles include, for example, the UN Guiding Principles on Business and Human Rights (UNGPs), which also create a basis for our human rights management approach, as well as various internationally recognised certification standards, such as the ISO management system standards for environmental and social management, occupational health and safety and information security management, as well as sector-specific certifications such as FSC for sustainable forest management, Global GAP for good agricultural practices, and SA8000 for social accountability, among others.

Finnfund is also a signatory to the Investor Guidelines for Responsible Investing in Digital Financial Services. It requires its members to comply with the responsible digital finance guidelines and client protection principles.

As part of our approach on climate, nature, and biodiversity, Finnfund is also committed to the Task Force on Climate-related Financial Disclosures (TCFD), and the Task Force on Nature-related Financial Disclosures (TNFD). Finnfund’s TCFD and TNFD reports are published annually as part of Finnfund’s Annual Report.

Categorisations for environmental and social sustainability

As part of the investment process, each investment is subject to environmental and social responsibility categorisation based on the guidelines agreed by the European Development Funds (EDFI).

Categorisations for direct investments:

Categorisations for financial institutions and funds: