Bundesbank moves forward on €9bn climate benchmark shift for public pension schemes

Euronext and S&P indices are aligned with EU rules and will offer a broader universe to the four pension funds

The German Bundesbank is to move €9bn of public pension money away from the Euro Stoxx 50 into climate benchmarks developed by Euronext and S&P.

The entire public equity portfolios of four pension funds, whose assets are run by the German central bank, will be shifted into two indexes aligned with the EU’s recently-launched rules for Climate Transition Benchmarks. 

The pension funds include two civil service schemes (Versorgungsfonds des Bundes and Versorgungsrücklage des Bundes), the fund for the Federal Employment Agency (Versorgungsfonds der Bundesagentur für Arbeit) and the provident fund for long-term care insurance (Vorsorgefonds der sozialen Pflegeversicherung). 

The move was first announced by the German federal government in its sustainable finance strategy in May, but the first of the benchmarks was launched this week, providing more details on the reallocation. 

Euronext has been chosen to provide the first of the benchmarks, using data from Moody’s-owned data provider VE and German sustainability ratings agency imug | rating. The Euronext V.E ESG World 75 index will track 75 companies across six countries outside the Eurozone, and will decarbonise in line with EU standards.  

S&P Dow Jones Indices was mandated to develop the Eurozone benchmark, the S&P Eurozone Bund/SV Climate Transition ESG Select Index, which it plans to launch later this summer. It will use S&P Global’s ESG scores to determine eligibility, with constituents selected and weighted to be compatible with a 1.5℃ warming scenario. It will exclude companies in breach of the UN Global Compact and those involved in ESG controversies.

The €9bn will be split between the two, with €3.15bn going into the ex-Eurozone index and the remaining €5.85bn being invested through the Eurozone index. Each pension fund will invest individually.

A spokesperson for the German Ministry of the Interior, which is responsible for the pension funds, said that the move into the Eurozone index should be complete by the end of 2021, with the shift into the ex-Eurozone index completed by the end of 2022.

Climate Transition Benchmarks are a regulatory category developed by the European Commission in recent years to provide ground rules for indices claiming to be green. They were created alongside more ambitious Paris Aligned Benchmarks. 

Last week, the Commission announced that it will review the minimum standards for both benchmarks to ensure that the underlying assets are compliant with its green taxonomy. It also plans to create an ESG Benchmark label, which will share characteristics with climate benchmarks, but cover a broader range of sustainability and ESG factors. 

The German Environment Agency yesterday released a report on transition risk in the German economy and financial sector. The report said that transition risk is poorly understood, and “rarely integrated into the decision-making of the real and financial economy”. The report details a ‘carbon quick scan tool’, which it says aims to “identify and assess possible exposures of German financial institutions to climate-related financial risks”, and assist financial institutions in implementing the recommendations of the Taskforce on Climate-related Financial Disclosures.