Dutch pension asset manager APG has launched a new sustainable index family to give its clients the opportunity to invest sustainably in a semi-passive way. The launching customer for the new index is Bpf Bouw, the €73bn pension fund for the construction industry.
The index product is a first for APG, which up until now had only offered actively managed products to its pension fund clients.
The new index family constitutes five global equity indices that were built by Qontigo and are executed by BlackRock. Four of the five indices invest solely in so-called ESG frontrunners while sector, country and factor allocations are held stable compared to the non-sustainable iStoxx APG World-X Index, which only excludes manufacturers of nuclear weapons and tobacco firms.
APG managing director Ronald van Dijk said: “We consider half of the companies in the investable universe as ESG frontrunners, and only these firms can be included in the index. On top of this clients have the possibility to add carbon and SDG filters.”
The SDG filter, which is based on data provided by the SDI Asset Owner Platform founded two years ago by APG and PGGM, will give clients additional exposure to companies that contribute to the UN’s Sustainable Development Goals (SDGs).
ABP not interested
APG has received a first €1bn mandate from Bpf Bouw to invest in the most ambitious of the five indices, the iSTOXX APG World Responsible Low-Carbon SDI Index. This money had previously been managed actively by APG.
A second client will follow “at short notice”, said Van Dijk. ABP, APG’s main client, said it is not interested in the new sustainable index. “We will not use it, as we prefer to invest all our assets actively,” an ABP spokesperson told IPE.
New clients wanted
APG, which until now was a fully active investor, believes its new suite of index products will position it to attract new clients. Van Dijk said: “Especially medium-sized pension funds want to invest sustainably, but are not prepared to pay for active management. APG is open to new clients, and this step makes it more likely that these funds will join us as asset management clients.”
The segmented approach of our new indices also makes it easy for pension funds to compare the effects on investment returns of the various filters, noted Van Dijk.
“The modular nature makes it possible to distinguish the effects of each separate filter [the ESG frontrunners, the carbon filter and the SDG filter]. This makes our approach so elegant,” he said.
The APG director is agnostic about the question of whether adding sustainability filters produces outperformance.
“We have made sure that the risk profiles of the new indices are comparable to those of the original index. Therefore, on the long term the returns should be comparable to the market. But whether sustainable investing produces outperformance is a question pension fund should be answering for themselves.”
APG is planning to further increase its offer of semi-passive indices. “It’s in the line of expectation that we will do so,” Van Dijk said.
“We are looking to launch a similar family of sustainable emerging market equity indices, and we are also investigating the possibility to launch a similar index for credits,” he added.