Responsible investment through index funds expands to emerging markets – Ilmarinen one of the co-developers

Asset management company BlackRock’s new ESG fund will be listed on New York’s Nasdaq stock exchange. Ilmarinen will participate in the listing of the fund through an investment of USD 600 million, or EUR 543 million.

“Responsibility has been an integral part of Ilmarinen’s investment activities for a long time now, and it is incorporated in our decision-making. However, many markets have been lacking a usable index fund that would integrate ESG aspects – environmental, social and governance impacts – at a sufficient level. We have contributed to developing these products, because the ones previously available on the market did not optimally integrate ESG from our perspective,” says Anna Hyrske, Head of Responsible Investments at Ilmarinen.

The new iShares ESG MSCI EM Leaders ETF invests in more than 400 large and medium-sized companies operating in emerging markets. Companies eligible for inclusion in the MSCI index tracked by the fund are required to show good performance in their sector peer group in taking account environmental impacts, human rights and governance issues. The fund covers a total of 26 emerging economies.

The index and the fund tracking it have excluded from their investment universe companies involved in the business of tobacco, alcohol, gambling, nuclear power and weapons, including nuclear weapons, and controversial weapons.

The new fund continues the transition of passive investment products towards ESG products

The new ETF continues Ilmarinen’s investments in passive investment products integrating ESG aspects. Of the EUR 49 billion in pension assets managed by Ilmarinen, approximately EUR 4.8 billion is invested in ETFs that invest in equities and shares. ESG index funds accounted for 71 per cent of this before the new fund was launched. The objective is for the proportion to exceed 90 per cent by the end of the year.

“In 2019, we transferred assets worth more than three billion euros to new, competitively priced passive products integrating ESG goals. We have investments in a total of four ESG-oriented ETFs. This is in line with our new Responsible Investment Policy,” says Niina Arkko, Responsible Investment Analyst at Ilmarinen.

Ilmarinen has previously transferred its index equity investments to ESG products in Europe, Japan and the USA. The now-launched fund will make this possible also in the emerging markets.

“Ilmarinen is pioneering an approach to re-orienting its entire portfolio towards sustainable solutions,” says Salim Ramji, Global Head of iShares and Index Investments for BlackRock.

Next, Ilmarinen will work towards MSCI to promote the goal of better integrating companies’ carbon risk in the indices tracked by both active and index funds.

“Integrating the carbon risk would entail that the index would better take into account companies’ dependence on fossil fuels. In any case, these new funds are already an important and much-needed addition to the offering of index funds,” Hyrske says.

The pension assets invested by Ilmarinen secure the financing of current and future pensions. Ilmarinen is responsible for the pension cover of approximately 1.2 million people. Ilmarinen is Finland’s largest employment pension insurance company. BlackRock is the world’s largest asset manager with global operations.