Asset AllocationApril 17, 2023

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

Ilmarinen investment helps make the ETF launch the largest in U.S. history.

Reported by Michael Katz

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.

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.”