Friday Funds: Federated Hermes partners with Natural History Museum in launch of biodiversity fund

The latest developments in ESG-related funds: Danske Bank makes U-turn on fossil fuels in sustainable indices; new research calls out active managers for lack of climate benchmarking.

Federated Hermes has launched a biodiversity equity fund in affiliation with London’s Natural History Museum. The fund, which is classified as Article 9 under SFDR criteria, aims to achieve long-term capital appreciation by investing in a concentrated portfolio of companies that are helping to preserve and restore biodiversity. The fund will target the following six themes: land pollution, marine pollution and exploitation, unsustainable living, climate change, unsustainable farming, and deforestation. Last year, the Natural History Museum developed a biodiversity intactness index to compare the state of local ecosystem biodiversity among countries as well as how different possible economic futures will affect nature in developed and developing countries over the coming decades.   

Danske Bank will remove fossil fuels from six index funds with a sustainable investment goal classed as Article 9 under SFDR, after receiving criticism. The exclusion follows the threshold ​​in the Nordic bank’s policy, where all companies with more than 5 percent of  turnover related to fossil fuels are excluded. The funds that follow the index will, among other things, receive an annual reduction of 7 percent in CO2 emissions in the portfolio. If a company does not meet the criteria for the index, the weighting of the index will be reduced and the company may eventually be phased out, the bank stated. 

New research from Pensions for Purpose, a knowledge-sharing hub which encourages pension funds to invest for impact, shows that active asset managers aren’t using climate indices to benchmark their carbon metrics, despite their funds being marked as ‘climate focused’. Instead, 73 percent of active climate-focused funds are benchmarked against the market capitalisation index rather than a climate index, from both a financial and climate impact perspective. A further 19 percent of active climate focused funds don’t have any benchmark at all. Climate benchmarks give managers specific objectives related to the greenhouse gas emissions in a fund’s portfolio. As opposed to active managers, 81 percent of passive managers do make use of climate benchmarks, according to the report. 

abrdn’s newly formed sustainability group will convert 24 SICAV funds as part of its sustainable investing evolution. Eighteen equity and six fixed income funds will convert to Article 8 under SFDR criteria in April. The updated framework includes formally widening the screening process and removing poorly rated ESG companies from the investment universe. Each fund will also include specific ESG targets and lower carbon intensity compared to its benchmark. 

CICC Hong Kong Asset Management has announced the launch of the CICC Carbon Futures ETF, which has started trading on the Hong Kong stock exchange this week. The ETF invests in the most liquid and most representative Intercontinental Exchange European Union Allowance (ICE EUA) futures contracts by tracking the ICE EUA carbon futures index, which measures the performance of a long-only basket of EUA contracts. Each EUA has an entitlement to emit one metric tonne of carbon dioxide equivalent gas under the European Union Emissions Trading System (ETS), the world’s largest carbon market. 

The European Fund and Asset Management Association (EFAMA) published its international statistical release for the fourth quarter of 2021, which examines developments in the worldwide investment fund industry. Net sales of worldwide investment funds exceeded the €1 trillion mark once again thanks to solid net sales of long-term funds and a rebound in the demand for money market funds. Worldwide money market funds recorded net inflows of €270 billion, compared to €19 billion in the third quarter of 2021. The increased demand for money market funds can be interpreted as a rise in risk aversion among investors at the end of last year, according to EFAMA.  

Pensioenfonds PostNL, which has 10.8 billion assets under management, has invested 400 million in two new impact equity funds as part of its goal to increase its exposure to the UN’s Sustainable Development Goals (SDGs). The two new impact funds will be managed by M&G and Hermes and both managers will select 30 to 40 stocks that contribute positively to at least one of three SDGs: Good Health & Wellbeing (SDG 3); Clean and Affordable Energy (SDG 7) and Sustainable Cities and Communities (SDG 11).  

Asset manager Janus Henderson announced that two of its technology investment strategies have commitment to the Net Zero Carbon 20 initiative. The Global Technology Leaders (GTL) and Sustainable Futures Technology (SFT) strategies will have a minimum of 20 percent of their respective portfolios as of this year engaged with or will have targets to be climate neutral by 2030. Electrification, smart cities and low carbon infrastructure are some of the investment themes with decarbonisation being key in the fund’s overall pro-active engagement strategy. In addition, the GTL and SFT strategies commit that over 50 percent of their current portfolio holdings (by weight) have decarbonisation targets, increasing to 80 percent in 2025, leading to 100 percent by 2030, at the latest. 

BNY Mellon Investment Management, which holds $2.4 trillion in assets under management, has announced the launch of the BNY Mellon Responsible Horizons Corporate Bond ETF. The ETF seeks to emphasize, through proprietary ESG rating methodology (delivered by in-house firm Insight), the best and avoid the worst performers on ESG issues, and to carefully consider the approach taken to investments in environmentally sensitive industries. This new ETF is the sixth actively managed and fourth dedicated sustainable solution in BNY Mellon Investment Management’s ETF range.