Philips Pensioenfonds has switched its developed market equity allocation to a bespoke sustainable index tailored to four Sustainable Development Goals (SDGs). Facebook did not make it to the new index due to an insufficient score on labour conditions.
The bespoke index is a first step in the implementation of the €23bn fund’s new sustainable investment policy. It involves an emphasis on four of the UN’s sustainable development goals (SDGs): Good Health & Well-Being; Sustainable Cities and Communities; Responsible Consumption and Production and Climate Action.
The new index has been developed in cooperation with index provider Qontigo, the firm behind the APG/PGGM SDI Asset Owner Platform, and BlackRock, Philips’ asset manager. BlackRock will invest the €4.5bn developed market equity portfolio according to the new index.
Companies that contribute positively to one or more of the SDGs in question will be overweight. Examples include Novo Nordisk, which produces diabetes medicines, and Vestas, the wind turbine maker.
On the other hand, some 200 companies that are on Philips’ exclusion list – such as weapons producers or tobacco manufacturers – or make negative contributions to any of the SDGs in question have been excluded. These firms account for 8% of total assets of the index.
One of the firms that Philips no longer invests in is Meta, the new name for Facebook. The social media giant has been excluded because of the labour conditions of Facebook’s content moderators. As part of their work, they have to watch extreme content such as violence and abuse which could cause traumas.
As a result, Facebook makes a negative contribution to the SDG Good Health & Well-Being, according to Philips. Other prominent companies that did not make it to the index include RioTinto and ExxonMobil (see box).
Investing differently with the SDGs
Good Health & Well-Being (SDG 3): divestment from Facebook (€53m). Increase in investments in Novo Nordisk (from €9 to €19m).
Sustainable Cities & Communities (SDG 11): divestment from Rio Tinto (€6m), due to the impact of mining on local communities. Increase in Rockwool, a producer of isolation material (from €0.3m to €3m).
Responsible Consumption and Production (SDG 12): divestment from mining firm BHP (€7m). Increase in Tomra Systems, a producer of machines for collecting bottles with deposit (from €0.4m to €4m).
Climate Action (SDG13): divestment from ExxonMobil (€17m). Increase in Vestas (from €2.5m to €22m) and utility firm NextEr, a producer of renewable energy (from €9.6m to €29m).
Overall, the Philips fund now has a 35% exposure to firms that contribute to the four focus SDGs. This compares to a 15% exposure for the benchmark. On the other hand, the fund still invests in 5,500 companies, expecting a tracking error of just 0.85% compared to the original index.
nvestment costs are ‘almost unchanged’ compared to its plain vanilla approach, according to Philips.
Philips is only the latest Dutch pension fund to introduce a bespoke index focusing on a small number of SDGs. These funds include, among others, PME, Detailhandel, PostNL, Rabobank, Shell, Bouw and PostNL.
In selecting the four SDGs, Philips took into account the views of the sponsor, Philips and Signify (formerly Philips Lighting). The scheme’s members also support the choice for the SDGs in question, a membership survey showed last year.