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Client story: pension scheme embraces sustainability via factor indices

Client story: pension scheme embraces sustainability via factor indices

31-05-2019 | Insight

Combining quant and sustainability investing? In 2018, a large, fast growing UK defined contribution multiemployer pension scheme was looking for an efficient factor-based investment solution for its equity portfolio, that would also feature an ambitious sustainability profile, including a values-based exclusion list and a significantly better ESG profile than the market index. Environmental footprint reduction was also among the aspects deemed important by the client.

  • Viorel Roscovan
    Viorel
    Roscovan
    PhD, Researcher
  • Peter Walsh
    Peter
    Walsh
    Head of Robeco UK

Speed read

  • Client wanted to replace its existing passive allocation to equities
  • Transparency and cost efficiency were considered of utmost importance
  • High-quality sustainability integration was also deemed essential
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One very particular request from this pension trust was that, for cost and transparency reasons, it wanted the solution to be managed in the form of a bespoke index, that could be replicated. At the same time, however, the client was aware of the pitfalls of generic products offered by index providers, in particular in terms of practical implementation. The client was therefore more inclined to consider a solution run by an active asset manager.

Meanwhile, Robeco had already been closely working with the scheme’s consultant, for several years at the time, conveying our approach to efficiently harvesting factor premiums in a sustainable way. As a result, turning to our Factor Index offering came as a natural move for this client.

Factor and Sustainability investing in an index

The chosen solution, Robeco Global Sustainable Multi-Factor Equities Index, harvests factor premiums in a systematic manner, allocating to individual stocks based on four factors: value, momentum, quality, and low volatility. The strategy also considers ESG and environmental footprint attributes of each stock and the overall portfolio as key parts of the index construction.

The involvement of RobecoSAM’s teams during the selection process was important to convince the client

More specifically, on top of applying RobecoSAM’s standard exclusion list, the strategy also targets an ESG score that is 20% better than that of the benchmark. It also targets a 20% reduction of the portfolio’s environmental footprint in terms of greenhouse gas emissions, energy use, water consumption and waste generation. The involvement of RobecoSAM’s teams during the selection process was important to convince the client that the sustainability component of the mandate was of the highest quality.

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