Pension Funds Willing to Take Passive Route to Impact

Large pension funds are expected to increase allocations to impact investments, with passive portfolios seeing stronger growth than active ones, according to research commissioned by German asset manager DWS. A survey of 50 large pension funds with combined assets of €3.3 trillion found that 54% were likely to increase the share of impact investments in their passive portfolios over the next three years. The survey also reported that 22% of pension funds had either fully embedded or were still implementing impact investments in their passive portfolios, which compares with 34% for active portfolios. The main drivers for pension funds’ interest in impact investing were cited as an increase in net zero commitments (64%), the introduction of mandatory reporting of ESG risks (62%), and improved prospects for achieving a double bottom line (60%). Around half of survey participants expect to see a greater proliferation of passive funds with impact themes, while more than a quarter (28%) indicated they would use indexes focused on thematic SDGs; the same proportion said they would use the EU’s climate transition and Paris-aligned benchmarks. “ETFs and passive mandates can make all the difference in helping impact investing break through on a broad scale. We are already seeing high demand from private and institutional investors for index concepts that formulate concrete goals, and we will be further expanding our efforts in this area,” said Simon Klein, Global Head of Passive Sales at DWS.

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