Finnish Pension Fund Invests More Than $2 Billion in Climate-Focused ETF

Finnish pension fund Ilmarinen has invested approximately 1.86 billion euros ($2.06 billion) in the Xtrackers MSCI USA Climate Action Equity ETF, helping to make it the largest ETF launch in U.S. history.

“This fund will cost-effectively provide us with a broad diversification into the best U.S.-listed companies in terms of the climate,” Ilmarinen CIO Mikko Mursula said in a release. “In addition, the fund supports us in our goal of a carbon-neutral investment portfolio by the end of 2035.”

The fund is intended for investors looking for exposure to large- and mid-cap U.S. companies that are considered leaders within their sectors in taking action relating to climate transition. The investment in the ETF incorporates existing investments Ilmarinen has in an Xtrackers ETF fund that it helped launch in 2019.

The ETF uses a passive index investing investment approach and seeks investment results that generally correspond to the performance of the MSCI USA Climate Action Index, before fees and expenses. Companies from the parent MSCI USA Index are assessed relative to their sector peers based on their emissions intensity, emissions reduction commitments, climate risk management and revenue from green companies.

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Meanwhile, the underlying index uses this assessment to choose half of the companies from each global industry classification standard sector of the parent index. Overall, the underlying index targets a coverage of 50% of the companies from each GICS sector from the parent index.

According to Ilmarinen, it got involved in developing the index because there were no widely diversified climate indexes suitable for the pension fund available on the market.

“This is the first ETF on the market to track the new index,” Mursula said. “With this investment, we can manage climate risk, get exposure to transition related opportunities, and align with our climate goals.”

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Tags: carbon neutral, climate, ETFs, Finland, Finnish, Ilmarinen, Mikko Mursula, MSCI USA Climate Action Index, passive investing, Pension Funds, Xtrackers MSCI USA Climate Action Equity ETF

The DOJ urged the SEC to consider all interactions with its four proposals when they are taken together, a concern shared by many in the financial industry.

The Department of Justice’s Antitrust Division wrote a comment letter on Tuesday to the Securities and Exchange Commission warning of possible negative interactions between the four market structure rules proposed in December.

The comment period for the SEC’s market structure reforms officially ended on March 31.

The four market structure proposals would require broker/dealers to disclose order execution quality (Rule 605), require wholesalers to conduct auctions for certain retail orders (order competition rule), take over enforcement of Regulation Best Execution from FINRA and reduce tick-sizes for national market exchanges.

The DOJ praised the efforts of the SEC to promote competition, which all four proposals seek to do. The letter noted that competitive auctions would promote transparency and competition for retail orders and that tick-size reductions would help slower traders at exchanges.

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The Antitrust Division also cautioned the SEC against implementing all of these changes at once, since they could interfere with one another. This is a common criticism of these proposals, but the DOJ’s letter included examples of hypothetical interactions.

The DOJ said tick-size reductions for exchanges could move order volume from wholesalers to exchanges, which would then reduce the number of orders that are subject to auctions, since that rule only applies to wholesalers. Additionally, the SEC’s Reg BE proposal requires broker/dealers to consider the competition present in a market when executing an order, a process which would be influenced by the auctions now required of wholesalers.

In short, the DOJ encouraged the SEC to be sure that, when taken together rather than in isolation, these proposals promote competition.

Many other actors have recommended that the SEC implement these rules sequentially, if at all, including JP Morgan and Vanguard.

Vanguard expressed strong support for the Rule 605 proposal, perhaps the least controversial of the four, and said it should be prioritized. This change would empower investors to find the best execution for their trades, since brokers would have to disclose their order execution quality publicly.

JP Morgan concurred and said Rule 605 and tick-size changes should be implemented first, with Reg BE implemented later when the impacts of the first two are more established. JP Morgan urged the SEC to abandon the auction proposal because, “It will negatively impact security prices for our clients” by slowing down the trading process long enough for others to notice an increase in demand and increase the price in response. In not accounting for this, the SEC overestimates the benefits to retail traders from the order competition rule, the firm commented.

Tags: broker-dealer, execution, SEC