LF’s First Dark-Green Fund

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    Stockholm (NordSIP) – Swedish insurer Länsförsäkringar (LF) has just revealed the name of its first fund to be incorporated under Article 9 of the EU’s SFDR. The fund in question, Länsförsäkringar Globala Mål Index (Global Goals Index), has been part of LF´s offering since 2018. However, the fund adopted a new benchmark at the end of last year. Instead of an index solely focusing on climate, it now tracks a benchmark that also optimises for the UN Sustainable Development Goals (SDGs), the Solactive Developed Markets ISS ESG SDG Climate Focus Index. Earlier this year, the fund also changed its name to reflect this new benchmark and focus.

    According to Sofia Aulin, Sustainability Manager at LF Fund Management, the move to classify the fund as Article 9 is a response to popular demand among the insurer’s customers. “With the ambitions that LF has in the field of sustainability, it feels natural that we should also have a dark-green fund in our range,” she says. “The choice to reclassify the fund now is partly because of the new focus reflecting the change of benchmark, but also because of the clarification from the European Commission earlier this year, which stated explicitly that a fund which has sustainable investments as its objective can track an index to achieve this objective,” she adds.

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    “Our fund invests in companies that contribute to achieving the UN’s Global Goals for environmentally, socially, and economically sustainable development in the world,” explains Aulin. “Since the index that the fund tracks, and thus the fund itself, contribute to reducing carbon dioxide emissions and a large part of the individual holdings in the portfolio aims at achieving the UN’s sustainability goals, it is evident that the fund has sustainable investments as an objective,” she adds.

    Solactive’s index is designed to reflect the global stock market while including only companies with an overall positive contribution to the seventeen SDGs and no significant negative impact on any one of the individual goals. Selection and weighting for the SDGs is done by producing a rating between -10 and +10 for all holdings in which the fund can invest, indicating whether the company has a positive or negative aggregate impact on the goals. The analysis, which includes all seventeen SDGSs, is conducted by ISS. Consideration is given to the companies’ products and services, their operational activities, and their involvement in previous incidents.

    In addition, to make it into the index, companies need to operate in accordance with market standards for responsible business conduct based on established norms such as the UN Global Compact. Companies involved in controversial weapons, certain fossil fuel activities, and military equipment are excluded from the investment universe. The weight of all eligible securities is then optimised to ensure that the index’ weighted overall SDG Score is at least 50% higher and its carbon intensity at least 50% lower than the benchmark.

    While the Global Target Index Fund is set to exhibit a darker shade of green than the rest of LF’s funds, the company is adamant that its entire fund range must be characterised by active sustainability work. “We can select between several clearly defined strategies, from exclusions and engagement with the companies in our portfolios to actively contributing to responsible social development,” says Aulin.

    The EU Commission is currently investigating the need for a proper categorisation system for financial products to replace the current classification under Articles 6, 8 and 9. Aulin welcomes this development. “I would say that it is still not completely clear when a fund should report according to Article 9 and not,” she argues. “Since SFDR is a transparency regulation and not a categorisation system, it is a bit confusing that it is sometimes used as if it were. Against that background, it would be better to have a proper categorisation system with clear requirements for the various categories,” concludes Aulin.

    Image courtesy of Mabel Amber from Pixabay
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