Industry Updates

Dutch pension fund partners with BlackRock and FTSE Russell to align €16bn to SDG passive index funds

Lastest index fund offers exposure to euro-denominated investment grade bonds

Jamie Gordon

ESG impact seed funding

Pensioenfonds Detailhandel has once again partnered with BlackRock and FTSE Russell to create an index fund offering exposure to euro-denominated investment grade bonds that are aligned with four of the United Nations’ Sustainable Development Goals (SDGs).

The most recent of three partnerships sees the pension fund allocate €3bn to a newly-created passive fund tracking the custom-built FTSE Euro Credit SDG-Aligned index.

This means almost half of its €32bn portfolio to four of the SDGs.

Previously, the three worked together in 2019 and 2020 to benchmark more than €11bn against SDG-aligned indices for the pension fund’s developed and emerging market equity portfolios.

The pension fund’s most recent foray into European credit will track the performance of fixed-rate, euro-denominated, investment-grade credit bonds which tilt based on issuers’ performance on UN SDGs.  

In particular, there is a stress on SDGs 8, 12, 13 and 16, which focus on decent work and economic growth, responsible consumption and production, climate action and peace, justice and strong institutions, respectively.

When the corporate debt elements of the SDG-aligned index and market cap-weighted parent benchmark are compared, carbon emissions of the sustainable index are 69% lower, while its allocation to green bonds is 69% higher and the combined fossil fuel reserves of its constituents are 62% lower.

It added an additional index overweight to green bond constituents is applied, as defined by the Climate Bond Initiative.

Monique Donders, country head, Netherlands, at BlackRock, commented: “More robust sustainability data in the fixed income space is allowing asset owners to access more ambitious sustainable credit asset portfolio.

“The implementation of this SDG-aligned euro credit mandate is one of the first of its kind anywhere.”

Arne Staal, CEO at FTSE Russell, added: “The index applies a simple and transparent set of criteria that increases the index fund’s exposure to bonds issued by companies and sub-sovereign entities scoring highly on issues such as decent working conditions, climate action and sustainable consumption and production.

This announcement comes four months after CREATE Research found two-thirds of pension funds expect to increase their allocation to passive funds targeting the ‘Social’ pillar of ESG over the next three years, despite the underwhelming roster of core-social products on offer.

It also follows a Danish pension fund’s decision in July last year to award Amundi with a mandate to run its €2.6bn passive global equity climate change portfolio.

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