Ilmarinen Mutual Pension Insurance Co., Helsinki, invested €170 million ($204 million) in AXA Investment Managers' new mutual fund.
The €53 billion pension fund is a seed investor in the AXA WF U.S. High Yield Low Carbon Bonds fund, an Ilmarinen news release said.
The fund focuses on carbon and water intensity, targeting a significant reduction in carbon footprint vs. the benchmark index. A number of investment sectors have been excluded, including weapons and tobacco. The strategy is also aligned with the European Union's Sustainable Finance Disclosure Regulation, which came into force in March.
The investment was funded by selling other fixed-income investments — normal activity in Ilmarinen's portfolio management, Harri Vuorinen, senior portfolio manager, said in an email. The fixed-income portfolio was €17.8 billion as of Dec. 31.
“We at Ilmarinen have set a target of a carbon-neutral investment portfolio by the end of 2035. ESG issues are integrated in our overall investment principles. Naturally, slowing down the climate change is one of the focus areas also for us,” Mr. Vuorinen said.
The fund's investment approach fully integrates ESG factors and is “particularly focused on the carbon and water intensity scores of issuers, and the fund is one of the first ones of its kind globally,” he said. “This was naturally attractive to us as an investor.”
AXA is also a long-term partner of Ilmarinen, he added.
"Fund managers have recently launched new ETF products, where ESG issues are integrated to the products. In addition, the product development of active funds is accelerating. This new fund is one of the first of its kind globally. Thus, we wanted to invest as a pioneer in this product," Harri Vuorinen, senior portfolio manager, said in the release.
Ilmarinen has invested €5 billion in ESG ETF funds that take climate issues into account, equating to 90% of the passive investments in its listed equity portfolio. The fund aims to be running a carbon-neutral portfolio by the end of 2035.
Sustainable fixed-income strategies "are lucrative alternatives for an institutional investor," Karoliina Lindroos, head of responsible investment, added in the release.
Further details on Ilmarinen's allocation were not immediately available.