Fiduciary manager Van Lanschot Kempen has developed a new sustainable emerging markets index for its pension fund clients. The new index excludes 30-40% of constituents, including Brazil.

“We excluded Brazil because it’s in the top 10 of countries with the worst labour rights,” explained Robin Schouten, a fiduciary manager at Kempen. He added: “The International Trade Union Confederation says the Brazilian government has violently suppressed workers’ strikes and collective bargaining efforts by trade unions. In addition, president Bolsonaro has limited workers’ rights by lowering salaries and allowing mass lay-offs during the COVID crisis.”

As a result, Kempen has not only blacklisted Brazilian government bonds, but also bonds and shares of state-controlled firms such as Petrobras.

Brazil has been excluded due to an insufficient score on the S-component of ESG. For the E-component, the firms uses Yale University’s bi-annual Environmental Performance Index.

“This index scores countries on ecology, biodiversity and climate management, measuring indicators such as deforestation, CO2 emissions and animal welfare,” said Schouten. “Countries get a score between 1 and 100. Countries that score lower than 35 are excluded.”

Examples of such countries are China, Qatar and Vietnam. “India has made it onto the list, but only just,” he added.

The G-component is based on scores provided by the Economist Intelligence Unit. “Countries that score lower than 4 on a 10-point scale drop out of the index,” Schouten said.

All in all, the index excludes a third of countries in the local currency index and 40% in the hard currency index. Kempen has backtested its two indices over the past three year-period, and found the returns discrepancies are “surprisingly small”, according to Schouten.

“Our hard currency index generated an annual outperformance of 0.5% while the local currency index delivered an underperformance of 0.1%, even though the tracking errors are 3% and 1.5% respectively.”


According to Schouten, the war in Ukraine was not the trigger for Kempen to design its own EM index.

“We first came up with the idea about nine months ago when we got questions from clients about our exposure to forced labour by Uyghurs. Before that, we had also received queries related to the football World Cup in Qatar and the murder of Jamal Kashoggi by Saudi Arabian intelligence officers,” he said.

Kempen will launch two new investment funds based on the new ESG indices.

“I notice a lot of appetite for this, and I expect at least 15 of our 20 Dutch pension fund clients to make the switch,” Schouten noted. “I also expect a lot of interest from our English pension fund clients and from private clients who prefer to invest sustainably.”

Kempen is currently in the process of selecting an external asset manager to manage the new funds.

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