The €8.7bn Dutch pension fund PostNL said it had developed its own sustainable index for European equity in collaboration with MSCI.
It said the index covered companies with a high environmental, social, and governance (ESG) rating and had an increased focus on low-carbon firms.
“After assessing existing ESG indices, we have opted for a tailor-made one, which offers more leeway to achieving our sustainable development goals and impact investment,” said René van de Kieft, the pension fund’s chair.
According to Van de Kieft, the index has been developed in collaboration with MSCI as well as fiduciary manager Kempen Capital Management.
He said other investors can also use the index, which comes in addition to the existing MSCI Europe SRI and the MSCI Europe ESG Leaders.
PostNL said its index is applicable to all its European equity holdings, which make up approximately a quarter of the scheme’s entire €2.3bn equity portfolio.
The tailor-made index consists of about 200 companies, which is sufficient for a diversified portfolio, said Van de Kieft.
The concentration risk in the Europe SRI index is too high as approximately 40% of investments had been made in the top 10 firms, it added.
“The addition of the climate goal greatly improves diversification as well as reduces carbon emissions,” the chair said, adding that carbon emissions had been important in the selection process of companies as well as their role in health care and affordable and sustainable energy.
“The addition of the climate goal greatly improves diversification as well as reduces carbon emissions”
René van de Kieft, chair of PostNL
He said the sector allocation of PostNL’s index matches the MSCI Europe, but the scheme’s approach had led to an underweighting of the energy sector, focusing on firms with concrete carbon reduction targets.
“As we have excluded some ‘carbon criminals’, CO2 emissions in our index are no more than 20% of the MSCI Europe’s”.
Van de Kieft said that, within the sustainable development goal of health and wellbeing, the treatment of important illnesses, the prevention of pollution as well as food are key subjects.
Based on treaties and undesired sectors, including tobacco, the new sustainable index has excluded an additional 18% of the broad index, according to the chair, who noted that the index is overweight healthcare (5%) and the industrial sector (3%).
He added that the assessment of pharmaceutical companies took, for example, their pricing policy into account.
With the introduction of its tailor-made index, PostNL has replaced TKP Investments as its asset manager for its European equity with Northern Trust, as part of Kempen’s fiduciary mandate.
PostNL indicated that it also wanted to increase sustainability of other asset classes, including real estate and direct lending.
Van de Kieft said: “Because of the COVID-19 crisis, investors can add conditions to direct lending. This enables us to emphasise the importance of sustainability in covenants, and also set additional credit conditions”.