BlackRock has launched an environmental, social and governance (ESG) focused version of a semi-active European equity fund, at the request of Dutch pension fund SCA.
The fund excludes companies that do not comply with the 10 UN Global Compact Principles.
The €450m SCA pension fund has invested around €50m into the ESG fund. Another pension fund has joined in, but its name has not been revealed.
SCA, the Dutch scheme of Swedish multinational firm Essity (which owns brand such as Tempo, Libresse, Tena and Cushelle), was already invested in European and US equities through BlackRock products. Most of the rest of its portflio is run by fiduciary manager MN.
Mathijs van Gool, director of the pension fund, said: “We wanted to introduce a measurable ESG policy for all our equity investments. Another requirement was that the costs should not be higher than with current products.
“The risk of ESG selection is that too many preferences could result in the exclusion of too many sectors… The risk is that the fund may miss out on returns in the long run.
“We want to invest according to ESG criteria, but not in that way. That is why we have chosen the 10 principles of the UN Global Compact as our tenets. They concern principles in the areas of human rights, working conditions, the environment and anti-corruption, that all 180 UN countries agreed on.”
The UN Global Compact Principles, which have also been signed by many companies, have been translated into measurable criteria. BlackRock is one of the signatories.
BlackRock has outsourced stock selection to the American-Swedish firm ISS Ethix, which monitors companies for violations of the UN Global Compact Principles.
The original fund invests in around 360 out of 660 companies from the broad MSCI index for Europe excluding the UK. These companies are selected by BlackRock on the basis of quantitative analysis.
“The fund has been outperforming the benchmark for years”, Van Gool said. “On average the return is one percentage point higher than the benchmark.”
Back-testing of the ESG strategy showed there was “no significant difference”, Van Gool added. “Despite the ESG screening, the costs for the new fund remain the same, which the social partners consider of great importance.”
For the time being, only a European ESG version of this fund has been launched. BlackRock is investigating how the same approach would affect the US strategy, Van Gool said, as there were likely to be more companies excluded.