Philips Pensioenfonds has aligned its €4.5bn developed markets equity portfolio – almost 20% of its assets under management – to four UN Sustainable Development Goals (SDGs), leading to the exclusion of roughly 200 companies with a value of around €300m that were deemed “detrimental” to the goals, RI has learnt.
The €23bn fund announced today it will shift its entire developed markets equity portfolio to align with four SDGs, using the iSTOXX PFF Responsible SDG Index – developed by Blackrock, the manager of the portfolio, and Qontigo – as its new benchmark. It previously used a broad developed market MSCI index.
The four SDGs selected by the fund are Good Health & Well Being (SDG3), Sustainable Cities & Communities (SDG 11), Responsible Consumption & Production (SDG12), and Climate Action (SDG13). Anita Joosten, Chief Investment officer of the fund for current and former employees of Dutch conglomerate Royal Philips and Signify, said it chose those goals as they “relate to” the two companies and “we wanted the SDGs to be investable”.
As part of the new investment strategy, the SDG index excludes companies that are obstructive to these goals. Joosten told RI: “This refers to companies that have had severe controversies related to SDGs, and companies that sell products and services that are detrimental to our four SDGs. If you start with a broad index, then about 6.5% of the index is excluded. The companies excluded from this index come from a range of sectors, based on both what they sell and how they produce it.”
“That concerns about 200 companies reflecting a value of broadly €300 million,” she added. “All transactions including the divestments [were] made at the beginning of December.” The fund would not be drawn on specific companies or sectors impacted by the exclusions.
Built using datasets including the Sustainable Development Investment Asset Owner Platform (SDI AOP), the index – which is designed as a broad equity benchmark – has been constructed to increase overall portfolio weighting of companies which sell products and services with positive contributions to the four selected SDGs by at least 20%.
SDI AOP is a Dutch initiative founded by APG and fellow pension investor PGGM in 2019 and backed by British Columbia Investment Management Corporation and Australian Super. It is a stand alone entity that seeks to standardise sustainable development investments and map investment portfolios to the SDGs. It uses an in-house ‘taxonomy’ to identify solutions to support the SDGs, and Dutch technology and data firm Entis uses AI to contribute “Sustainable Development Investments classifications” for 8,000 firms to the platform. Qontigo has exclusive distribution rights for the data.
Today's announcement marks the second time data from the SDI AOP is used to build investable indices, after APG launched benchmarks in September partly based on such data also in partnership with BlackRock and Qontigo. At the time, it said two Dutch pension funds had committed around €1bn to the strategy through a pooled fund tracking the iSTOXX APG World Responsible Low-Carbon SDI Index.
Philips pension fund plans to expand the SDG alignment of its portfolio, Joosten said, explaining it started with its developed markets equity portfolio because it’s a significant part of its overall AUM and there’s good SDG data availability. Moving forward, it will look at conducting the same integration for its Emerging Markets Equities and from there explore other asset classes such as credit. Joosten explained the SDGs will stay the same regardless of which asset class and that the fund doesn’t have a broad SDG target for total assets, instead it will look to improve SDG alignment asset class by asset class.
Recently, the Director of the UN Development Programme’s SDG Impact told RI that SDG-washing is a “big issue” in the investment industry.
When asked about this, Joosten said: “It’s very important that we are clear about what we can do and what we cannot do. By looking at the SDI AOP Platform’s independent data and linking revenues in a measurable way to the SDGs we can be clear about what we can achieve and how much our index is aligned with the SDGs through revenues of underlying companies.”
Dr Arian Borgers, Investment Manager covering responsible investment policy design at the fund, added: “Transparency is important, our policy is not about only investing in companies that are already 100% sustainable. Following the adjusted benchmark we are investing more in companies that are contributing to the SDGs but not exclusively in these companies.”