Handelsbanken Funds Move $15 Billion to Meet Paris Goals

(Bloomberg) -- The asset management unit of Sweden’s biggest bank is revamping five index funds to track benchmarks that live up to climate goals laid out in the Paris Agreement.

Handelsbanken Fonder will spend this week and next on the reallocation, which will affect 12.5 billion euros ($15.2 billion) in passive assets, Emma Viotti, who runs Handelsbanken Fonder’s index, ETF and passive solutions business, said in an interview. The decision follows an “intense dialogue” with clients over the past six months, with more such reallocations already in the pipeline, she said.

Asset managers across the globe are racing to adjust portfolios to meet environmental, social and governance goals. Handelsbanken Fonder, which oversees $95 billion in assets, said last month it plans to achieve net zero emissions from its portfolios by 2040 at the latest. About 95% of the unit’s assets are already invested according to sustainability criteria, and Viotti said it won’t need to resort to transition benchmarks to adapt to the climate goals stated under the Paris Agreement.

“We think we’re already past that benchmark in terms of the sustainability level, given that these funds today have fairly strict exclusions,” she said. “And we know that the type of customers we have want exclusions in some areas. We thought it was setting the bar too low, to start on climate transition.”

Viotti says it’s “impossible” to predict how the shift will affect returns. “But our belief is that sustainability is a prerequisite for long term returns.” She also says active ownership is key to do sustainable investing effectively.

The first round of reallocations will affect global portfolios, but Viotti says Handelsbanken will also look at Nordic funds in the coming months.

“Several funds have been launched in the recent year tracking Paris-aligned benchmarks, but to my knowledge none or few made this shift, moving existing index funds into these strategies,” Viotti said.

Reducing emissions to net zero -- the point at which greenhouse gases are removed from the atmosphere as quickly as they’re added -- is considered vital to limit the increase in average global temperatures to no more than 1.5 degrees Celsius. That’s seen as the critical threshold if the world is to avoid disastrous climate change.

The new benchmarks that Handelsbanken will be using have been developed by the index provider Solactive and ISS ESG and operate in line with the regulations laid out for EU Paris-Aligned Benchmarks (EU PAB). They represent the global stock market, Emerging, European, U.S., and global small cap markets, respectively.

The funds that are being moved are Handelsbanken Global Index Criteria, Handelsbanken USA Index Criteria, Handelsbanken Europa Index Criteria, Handelsbanken Emerging Markets Index and Handelsbanken Global Smabolag Index Criteria (Global Small Cap).

More on the reallocation:

• Handelsbanken Fonder says the aim of the benchmarks is to reduce greenhouse gas emissions both in relative terms towards their investable universe as well as in absolute terms with a 7% yearly decarbonization.
• The benchmarks go beyond the minimum requirements in the regulation starting at a greenhouse gas emission intensity reduction level of 55%.
• The benchmarks have a more extensive sector based screening in order to comply with the exclusion requirements of the Nordic investor. In addition to fossil fuels, screening is done for activities such as weapons and military equipment, tobacco and commercial gambling among others.

Read more about Handelsbanken´s climate targets here

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