Client engagement

February 2020

Pensioenfonds
Detailhandel andFTSE Russell
The following quote from Detailhandel’s March 2019 press announcement provides the Fund’s perspective“Detailhandel wanted to minimize risk in its investments while pursuing thehighest possible returns in a sustainable manner. We created this unique
SDG aligned index as an important first step to help make the entire portfolio
sustainable in a way that aligns with the ESG themes and SDGs its members
find important. Moreover, the fund trustees involved the members byallowing the choice of a fourth SDG (12) via a survey (having already chosenthree themselves).”

FTSE Custom Developed ex Korea SDG Aligned Index
The FTSE Custom Developed ex Korea SDG Aligned Index (“SDG Aligned index”) is a developed market equity benchmark
launched in March 2019 that uses adjustments to constituent weights to create alignment with four of the 17 goals within the UN
Sustainable Development Goals (SDGs) framework.

Objectives
The objective of the index design was to create a simple, transparent way to align a broad (developed) market portfolio with specificaspects of the SDGs. The approach adopted was based on a detailed mapping exercise of FTSE Russell’s sustainable investment
research and the SDG framework.
The SDG Aligned Index was developed in collaboration with a PRI signatory, and one of the Netherlands’ largest pension funds,
Pensioenfonds Detailhandel (“Detailhandel”), and now forms the basis of a €5.8bn mandate (as of March 29, 2019).
The index was developed to support the implementation of Detailhandel’s sustainable investment (SI) policy, which identifies areas ofoverlap between its SI objectives and the SDGs. Specifically, Detailhandel identified the following SDGs as relevant to its SI policy:
1.
2.
3.
4.

SDG 8 – Decent work and economic growth
SDG 12 – Responsible consumption and production
SDG 13 – Climate action
SDG 16 – Peace, justice and strong institutions

For Detailhandel in particular, the index is an important first step in helping align their entire investment strategy with theirenvironmental, social and governance (ESG) objectives and the SDGs, while also retaining the characteristics of a passively
managed broad market equity portfolio.

Client engagement

The index
This index provides institutional investors with a tool to align a passive equity
portfolio with aspects of the SDGs.
The chart below provides further information on the four SDGs:

Companyoperations

8121316

DECENT
WORK ANDECONOMICGROWTHRESPONIBLE
CONSUMPTIONANDPRODUCTION

CLIMATEACTIONPEACE,JUSTICE AND
STRONGINSTITUTIONS

Supply Chain:SocialPollution &Resources

ClimateChangeHuman Rights &Community

Labor
Standards

Supply Chain:
Environmental

CarbonEmissions

Anti-Corruption

Biodiversity
Company
products/services

Green
Revenues
Fossil FuelReservesFTSE Russell’s SI research assesses companies based on how they operate andwhat they produce, captured via our ESG Scores and Green Revenues datamodels, respectively. The methodologies underlying these data models can bemapped to the 17 SDGs and their underlying targets to identify areas of alignment
between FTSE Russell’s sustainable investment research and the SDG framework.
––––

To achieve alignment with the SDGs it is not sufficient to examine companies
based only on their products/services or only their operations—a holistic
assessment of both is required.
Adjustments to constituent weights were achieved using “tilts”(over/underweights).
Based on a combination of constituent-level ESG Theme scores as well ascompany exposure to the global green economy (using Green Revenues data).
Climate-related aspects of the SDGs are further captured by incorporatingcompany exposure to fossil fuel reserves and their operational carbon emissions.

In addition, the index:––

Supports capital market transparency and disclosure by providing a signal tocompanies regarding performance on a range of sustainability themes, and:Feeds into investor stewardship and corporate engagement activities due to thetransparent, tilt-based index construction process and sustainable investment
research methodologies.

Investors can use the SDGs as a lens for assessing company operations, products
and conduct, and can use these assessments as the basis of adjustments tocompany weights in an index.
We believe that highlighting the relevance of the SDGs to investors—and inparticular the different ways in which they can be incorporated into investment
decision-making—will stimulate debate and further action on data gaps, whatrepresents investor and company best practice, how to create and evolve
investment strategies in support of the objectives of the SDGs, etc. The SDG
Aligned Index is the starting point for what we hope will be an evolving approach tocapturing the SDGs via benchmarks and indices.
This index will allow us to use our ESG/SDG framework to support other investors
in capturing aspects of the SDGs into their benchmarks/indices.

FTSE Russell

2ABOUT FTSE RUSSELL
FTSE Russell is a leading global provider of index and benchmark solutions, spanning diverse asset classes and investment objectives. As a trusted
investment partner we help investors make better-informed investment decisions, manage risk, and seize opportunities.
Market participants look to us for our expertise in developing and managing global index solutions across asset classes. Asset owners, asset
managers, ETF providers and investment banks choose FTSE Russell solutions to benchmark their investment performance and create investment
funds, ETFs, structured products, and index-based derivatives. Our clients use our solutions for asset allocation, investment strategy analysis andrisk management, and value us for our robust governance process and operational integrity.
For over 35 years we have been at the forefront of driving change for the investor, always innovating to shape the next generation of benchmarks
and investment solutions that open up new opportunities for the global investment community.
CONTACT US
To learn more, visit lseg.com/ftse-russell; email info@ftserussell.com; or call your regional Client Service team office:
EMEA +44 (0) 20 7866 1810

Asia-PacificNorth America +1 877 503 6437

Hong Kong +852 2164 3333Tokyo +81 3 6441 1430
Sydney +61 (0) 2 7228 5659

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