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Finance & Investment
Goldman Sachs, CMS Energy, Danish Pension Funds Take on Sustainability-Linked Investments

Among the latest wins for ‘good finance,’ Goldman Sachs Asset Management (GSAM) launched an exchange-traded fund (ETF) tied to measurements of “just” business behavior; utility company CMS Energy has become the first U.S. company to enter a sustainability-linked loan; and six Danish pension funds partnered with the Danish State to establish a new DKK 4.1 billion Danish SDG Investment Fund.

GSAM’s newly launched ETF is intended to track the JUST U.S. Large Cap Diversified Index (the Index) constructed by JUST Capital, an independent non-profit that uses data and markets to promote positive change in corporate behavior. To create its rankings and the Index, JUST Capital conducts an annual survey of the American public and then analyzes 120,000 data points across 85 unique metrics to score companies based on how they perform on the key issues prioritized by the public.

The Index is designed to provide the broad market exposure of the Russell 1000 Index, while featuring only companies with above-average scores across all major social, environmental, and governance issues critical to the American people. Historically, companies in the Index on average pay better, create more jobs, pay fewer fines, give twice as much to charity, emit less greenhouse gas, and have higher return on equity, compared with the rest of the Russell 1000.

“JUST Capital’s association with GSAM is grounded in a shared belief that capitalism should be a positive force for change and that its future will be driven by a new definition of corporate success that is aligned with the values and priorities of the public,” said Paul Tudor Jones, co-Founder and Chairman of JUST Capital. “We have the unique opportunity to help shift resources toward companies driving change on the country’s most intractable social, environmental, and economic problems.”

The new ETF, called JUST, aims to provide broad exposure to U.S. large cap equities, with a focus on companies that demonstrate just business behavior. It joins over $8 billion in other assets under management by GSAM in ETFs.

Meanwhile, CMS Energy and its primary subsidiary, Consumers Energy (collectively "CMS"), have entered the first syndicated sustainability-linked revolving credit facilities for a U.S. borrower. The Michigan-based utility company will be able to reduce its interest rate on an aggregate $1.4 billion of new credit facilities by meeting targets related to environmental sustainability, specifically renewable energy generation.

Barclays, Bank of America Merrill Lynch, J.P. Morgan, MUFG and Mizuho acted as Joint Lead Arrangers for the facilities, while Barclays acted as Sustainability Structuring Agent.

“We are excited to be a trendsetter in the United States entering an innovative credit facility, where sustainability and financial results go hand-in-hand,” said Patti Poppe, president and CEO of CMS Energy. “Our company has a proud history of leaving it better than we found it, and we are confident that our new clean energy goals will support our commitment to deliver consistent, industry-leading financial performance.”

Among the company’s clean energy goals for 2040, CMS aims to use zero coal-generated electricity, reduce carbon emissions by 80 percent, and meet a renewable energy goal of more than 40 percent.

Late last week, six pension fundsPensionDanmark, PKA, PFA, ATP, JØP/DIP and PenSam – together with IFU signed an agreement to establish the Danish SDG Investment Fund, which is part of the Danish contribution to the UN Sustainable Development Goals (SDGs). The public-private partnership has a current capital commitment of DKK 4.1 billion and is expected to contribute to investments worth approximately DKK 30 billion in developing countries.

At the time of publishing, these amounts are equivalent to roughly US$649 million and US$4.75 billion, respectively.

The fund is seen as an innovative solution to increase private investments in developing countries. While IFU and the Danish State are contributing DKK 1.65 billion, the six pension funds are contributing a combined total of DKK 2.4 billion and a private investor is contributing DKK 80 million. ATP, which manages about US$120 billion in assets, predicts it will make about 10-12 percent on its investment in the fund. ATP CEO Christian Hyldahl added that risks will be limited because of the government’s involvement.

“This is a market in growth and there will be many opportunities, also in emerging markets countries,’’ Hyldahl said. “So we expect that these investments will make up an increasingly larger part of our portfolio.’’

The Danish SDG Investment Fund will invest equity in companies in Africa, Asia, Latin America and parts of Europe. Investments will be made in cooperation with Danish companies, which have strong competencies, knowledge and technologies within several strategic sectors that support the realisation of the development goals. The fund will be operated on commercial terms and will ensure a competitive return to its investors.

“The new fund is a good example how to mobilize private capital in a large scale to fund the investments needed to fulfill the Global Goals,” said PensionDanmark CEO Torben Möger Pedersen. “This initiative is underlining, that the best development aid is sustainable business.”


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