The German states of Hessen, Baden-Württemberg, North Rhine-Westphalia and Brandenburg have appointed index provider STOXX to develop and maintain a family of sustainable equity indices to invest pension assets of €7bn.
A spokesperson for Hessen told Responsible Investor that it has already transitioned its equity portfolio to the new index family and no longer invests in the European ESG index created for it by Switzerland-based Stoxx in 2012. STOXX is part of the Qontigo index business of German exchange group Deutsche Börse.
In May, Hessen became the first German state to sign up to Principles for Responsible Investment (PRI) on behalf of its €3.7bn reserve pension fund
RI covered the tender for the index in a recent profile of the State of Hessen – the home of the Frankfurt financial centre and which is increasingly seen as a leader on ESG in the country.
In May, Hessen became the first German state to sign up to Principles for Responsible Investment (PRI) on behalf of its €3.7bn reserve pension fund, which is managed by Hessen’s Ministry of Finance.
A few months later, Hessen announced it had acquired a stake in Arabesque S-Ray, the Frankfurt-based ESG-scoring provider.
STOXX’s newly created indices each consist of around 60 stocks, with one focusing on European firms and the other on those outside of the Eurozone.
The former is expected to draw €4bn from the German pension funds’ and the latter €3bn, according to the contract award notice.
For each index, there will also be an ex-fossil fuel version. Hessen’s spokesperson told RI that it is “represented only in the indices without fossil fuels”.
The benchmark for the new index family is the STOXX Global 1800 Index, which also defines the indices’ initial investment universe before the ESG criteria is applied.
For the Stoxx ESG Laender Fossil Free Eurozone Index and the Stoxx ESG Laender Fossil Free Global Ex Eurozone Index, companies that are “noncompliant” with the UN Global Compact principles or that are involved in controversial weapons activities are excluded. As are companies that generate above 5% of their revenues from adult entertainment, nuclear power or fossil fuels with the exception of gas.
Remaining companies are then ranked by their ESG score with those in bottom 50%, or which don’t meet a 50-point threshold, being omitted.
A final screen which removes the top 10% in terms of high carbon emissions is applied before 60 companies are selected based on “free-float market capitalization”.
The value of the contract with Stoxx is €1.5m and only one other bidder competed for it.