25 Nov 2020
LGIM partners with AP1 to launch an innovative ESG fossil-fuel free Emerging Market Equity (index) fund
Legal & General Investment Management (LGIM) has today launched the L&G Emerging Market Equity Future Core [Index] Fund. The new proposition has been developed in collaboration with the Swedish public pension fund AP1 to meet the institutional needs of a passive investment solution addressing multiple ESG dimensions. The Fund is available to institutional and wholesale investors in Europe.
LGIM is a leading provider of passive investment solutions with index assets of €436bn1. The firm is developing a new generation of index funds that integrates ESG and leverages LGIM’s active ownership capability and engagement with the underlying companies in the index, including through the use of voting.
The capital will be allocated based on how well companies score on ESG criteria. Those with good scores will receive a higher weighting compared to their market capitalisation, while those with poor scores will be weighted down. The ESG scores companies receive are fully transparent, enabling them to be informed on what they need to do to improve.
The fund tracks the Solactive L&G Emerging Markets Future Core Index, which was developed by LGIM and is calculated by the Germany-based index provider Solactive. The index consists of large and mid-cap companies across 26 Emerging Markets, which in addition to energy and tobacco sector exclusions apply exclusion criteria in product involvement relating to nuclear power generation; assault and controversial weapons; coal and thermal coal; tobacco production and retailing; oil sand extraction; recreational cannabis; gambling; and repeated violation of the United Nations Global Compact (UNGC) principles.
We recognise the needs and desire of investors to have a solution for their index allocations that removes fossil fuel exposure and integrates key elements of ESG while respecting the risk and return profile that they have via their current index products.
We believe that changing the actions and behaviours of the underlying companies in the index is the only way to properly integrate ESG. LGIM’s solution links engagement with voting, and in turn the allocation of capital is based on how well companies fare on key ESG metrics.
We aim to prompt the underlying companies in the index to take ownership of their own actions and, by doing so, they will be able to affect their weight in our index.
Colm O’Brien, Head Index EMEA, Legal & General Investment Management (LGIM)
We are excited to see that our discussions with LGIM around passive investments, active ownership and sustainability have evolved into the development of this innovative new fund. We believe addressing multiple ESG dimensions in a transparent way will drive both change and shareholder value whilst providing us with the risk and return characteristics we seek from passive investments. We furthermore believe that long-term investors like ourselves have a responsibility to affect change by means of allocating our capital. We have therefore chosen to launch this strategy in a fund format so that like-minded investors have the opportunity to co-invest with us.
Majdi Chammas and Tina Rönnholm, External Partnerships & Innovation at AP1
We are pleased to have joined forces with AP1 in combining our respective areas of expertise in responsible investment to bring this strong proposition to market.
This index solution has been built with LGIM’s core belief that by exercising our rights and positions as one of the world’s leading asset managers, we can influence the actions and behaviours of the companies in which we invest on behalf of our clients. We believe that this will lead to positive change in the companies and markets in which we invest, ultimately resulting in long-term value for our clients.”
The Fund is an Irish ICAV that meets European UCITS standards. It is registered in Denmark, Finland, Germany, Ireland, Norway, Sweden, the UK and the Netherlands. The Fund will also be registered in Austria and Switzerland.
LGIM has a strong expertise in responsible investing and takes its investment stewardship seriously. As well as assessing over 16,000 companies under its ESG scoring methodology, LGIM has recently been recognised for being a top supporter of ‘climate-critical’ shareholder resolutions in 2020 compared to the world’s 12 largest asset managers1. In 2020, independent NGO ShareAction ranked LGIM #1 among asset managers for its approach to climate change2. The firm was also selected by the UN Principles for Responsible Investment in October as part of its ‘leaders group’ on climate change3
Volker Kurr, Head of Europe Institutional, Legal & General Investment Management (LGIM)
1 As of 30 June 2020
2 Majority Action, Climate in the Boardoom, How Asset Manager Voting Shaped Corporate Climate Action In 2020, available at https://static1.squarespace.com/static/5d4df99c531b6d0001b48264/t/5f6976e5f6b47e5e50c11430/1600747275103/MA_ClimateintheBoardroom_2020.pdf
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