US investment giant BlackRock has been selected by Fonds de Compensation (FDC), Luxembourg’s general national pension scheme, to develop a Paris-aligned global bonds index strategy as part of a €500 million ($530 million; £435 million) mandate.
Investments under the planned strategy will be confined to bonds included in the Bloomberg Global Aggregate Excluding Securitized Total Return Hedged EUR index. But the tender document added that in addition to replicating the performance of that benchmark, prospective bidders “must submit a proposal that allows the mandate to be aligned with the Paris Agreement objective of limiting global warming to well below 2°C, preferably 1.5°C”.
It also stipulated that the proposed strategy must be “classified” as Article 8 or Article 9 under the EU’s sustainable investment disclosure legislation SFDR.
BlackRock saw off four other bidders for the contract, worth €245k.
When asked if the strategy would be classified as a Paris Aligned Benchmark (PAB) as defined by the EU, a spokesperson for FDC told Responsible Investor that the short answer was yes. But they added that the PAB criteria could not be applied throughout the whole portfolio due to variations between sub-asset classes, which include “corporate bonds, government bonds, treasuries, agencies, local authorities and supranationals”.
“PAB optimisation constraints will be applied but there are a few limitations where CTB [Climate Transition Benchmark] constraints will however apply,” they said. “As an example, agencies without reported emissions and local authorities will be based on the CTB constraint of 30% absolute GHG emissions reduction (PAB foreseeing 50% absolute reduction).”
CTB were designed to be less ambitious than their PAB counterparts and are often described as a stepping stone to achieving a portfolio aligned with 1.5 degrees.
The FDC spokesperson told RI that the main reason BlackRock was selected was its ability to “cover also the non-corporate part of the allowed investment universe with regard to the Paris alignment criteria”.
BlackRock is currently working on the Paris-aligned benchmark, the spokesperson added, and added that the launch date is still unknown.
The BlackRock award was one of five announced yesterday (Monday), with two others also explicitly mentioning sustainability.
The first was an active €250 million emerging markets sovereign bond strategy awarded to Amundi Asset Management, which beat 12 other tenderers for the €450,000 contract. Prospective bidders were required to demonstrate “sustainability and climate criteria/research in its investment strategy” but the “type, scale and impact of this sustainable approach/research on the portfolio” was not predefined by FDC.
The other was an active €500 million small cap equities mandate awarded to Allianz Global Investors. The German investor saw off six rivals to secure the €1.25 million contract. This global strategy will track the MSCI World Small Cap Net Total Return USD index. Like the emerging markets bond strategy, FDC required the successful bidder to prove its sustainability credentials but without dictating the strategy.
FDC’s spokesperson told RI that Allianz sets a 20 percent threshold for sustainable investments, using the Sustainable Development Goals (SDGs) and the EU’s taxonomy as its reference framework. “Thus, AGI tries to identify companies with business activities that contribute to environmental and social goals.”