Luxembourg 17bn euro pension reserve fund goes to market for 1bn euro in new ESG mandates

Luxembourg’s €17bn pension reserve fund, Fonds De Compensation (FDC), has ramped up its commitment to ESG with over €1bn in new mandates, including allocations to SDG aligned equities and green bonds. The tendering follows the fund’s implementation of a “strengthened” Socially Responsible Investment policy in January. In December 2017, FDC, which manages the compensation reserve of the country’s general pension insurance scheme, appointed Amundi AM, Allianz GI, AXA IM, and HSBC to manage five sub-funds worth a combined €3bn with the stipulation that socially responsible investment be considered. It is now looking to hire managers for three new ESG active mandates.
The first mandate is for a €750m equities portfolio, which must be managed with “sustainable principles or socially responsible investment in its investment strategy and decision‐making processes”. The Sustainable Approach World Shares portfolio will be measured against the MSCI World Net Total Return Index benchmark. The second is for a €200m impact focused active equities portfolio.The World Sustainable Impact Equity’s objective is to “generate, alongside performance…a measurable sustainable impact” by investing in companies that are aligned with the United Nations’ Sustainable Development Goals (SDGs). It will be benchmarked against the MSCI World IMI Net Total Return Index. Its third mandate is a €100m bond portfolio exclusively dedicated to green bonds included in the Bloomberg Barclays MSCI Euro Green Bond Total Return Index. FDC plans to award the contracts in October 2018. FDC strengthened its Socially Responsible Investment Policy following a review of its investment strategy in 2017. The review sought to deepen, “the consideration of sustainable development criteria and socially responsible investment”, and led to the fund deciding that, “in any new call for tenders for active management, any bidder will have to demonstrate, via a dedicated section in the weighted selection questionnaire, that it incorporates a sustainable approach or socially responsible investment in the proposed investment strategy”. To date more than 50% of the fund’s actively managed assets are currently managed according to its SRI criteria.