The Dutch pension fund for the retail sector had already applied similar benchmarks to other parts of its portfolio. The tracked SDGs are in line with scheme members’ preferences and linked to the retail and supply chain sectors.
Pensioenfonds Detailhandel, the Dutch pension fund for the retail sector, has applied a benchmark modelled on four of the UN Sustainable Development Goals (SDGs) to its €1.2bn high yield portfolio.
The move comes after the fund applied a bespoke filter to its emerging market debt portfolio in 2022. A similar benchmark for the fund’s credit portfolio was introduced a year earlier, as reported by Impact Investor.
The FTSE Russell custom developed SDG aligned indices use adjustments to constituent weights to create bespoke alignments for each portfolio.
Detailhandel, with total assets under management of nearly €29bn, has now invested €16.5bn across its equity and bond strategies since 2019, in line with the SDGs Decent Work & Economic Growth (SDG 8), Responsible Production and Consumption (SDG12), Climate Action (SDG 13) and Peace, Justice and Strong Institutions (SDG 16), on a liquid portfolio of €24.6bn.
In 2022, the pension fund selected asset manager Tikehau Capital to manage a €100m impact private debt mandate.
The fund’s responsible investment manager, Louise Kranenburg said she and the team believe implementing ESG-considerations into their investment practice, leads to better portfolios in the long run.
“We also strongly believe we should take our beneficiaries’ preferences into account. As the pension fund of the retail sector, some SDGs are closely aligned to working in the retail and retail supply chains.”
Research among Detailhandel members about their SDG preferences resulted in a focus on SDG 8 (Decent Work), SDG 12 (Responsible Consumption and Production), SDG 13 (Climate Action), and SDG 16 (Peace, Justice and Strong Institutions).
One strong example of the alignment of SDG’s in EMD can be found in the integration of SDG 16 (Peace, Justice and Strong Institutions). For the development of countries, it is important that there is peace and a well-functioning justice system, available to all parties in a country, Kranenburg said.
“Moreover, it is important that the economy in a country can develop in a stable way, without corruption.”
Additionally, the fund does not invest in countries that are undemocratic as that goes against the objectives of SDG 16, Kranenburg added.
SDG benchmark creation
FTSE Russell’s Richard Davies and Julien Moussavi were part of the team who created a new platform from scratch on account of there being no similar sovereign indices solution available.
Some Dutch pension funds have agreed to provide SDG solutions across their pension funds, with each strategy deciding which SDGs take precedence depending on theirs and their pension participants preferences, according to Davies.
Looking ahead Davies added that while SDG focus on sovereigns and EMD is still in its infancy, it is coming more into prominence. “I reckon we are in the same place with sovereigns as corporate ESG was ten to 15 years ago.”