This week in asset owner history: Taiwan BLF’s first overseas ESG mandate
In November 2016, Taiwan’s Bureau of Labor Funds (BLF) said it would run a $2.4 billion mandate for its first global environmental, social and governance (ESG) smart-beta passive equity allocation in a bid to diversify its portfolio.
This was the first time that the largest pension manager in Taiwan expanded its ESG investment into an overseas mandate.
At the time, the mandate specified that portfolio companies must meet ESG responsibilities, and cannot come from industries involved in tobacco, alcohol, munitions, gambling, or pornography. Moreover, they must not have been involved in major controversies in the environmental, client services, human rights, labour rights, suppliers, or corporate governance spaces.
The ESG mandates adopted a mixed smart-beta index strategy comprising certain factors — high quality, low volatility, and enhanced value — in order to optimise portfolio return amid the increasing volatility of global equity markets.
Before that, BLF had also issued two domestic ESG-related mandates for a total of NT$60 billion (or NT$30 billion each). They track the Taiwan Employment Creation 99 Index (mandate awarded in 2011) and the Taiwan Top Salary 100 Index (awarded in 2014).
The former index tracks the 99 TWSE-listed companies that hire the most Taiwanese employees, while the latter tracks the 100 domestic companies that pay the highest salaries.
LONG JOURNEY
Across pension funds in Asia, BLF is among the first to be active in ESG investment, and had incorporated ESG considerations across all manager selection processes since 2017, it told AsianInvestor.
After the pandemic started, BLF expedited issuing ESG mandates both domestically and overseas. But as of this year, the process has slowed down amid global market turmoil.
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Earlier in 2022, BLF chose HSBC, Morgan Stanley, and three others to manage what it called Asia’s first climate change-focused strategy worth $2.3 billion in assets.
Most recently in October, it opened a bid to hire seven asset managers for a NT$70 billion ($2.2 billion) domestic absolute return equity mandate by December, focusing primarily on locally listed companies that are ESG-compliant.
The mandate will be benchmarked against the five-year average return of Taiwan’s stock index plus 250 basis points.
As of end-September, the assets controlled by BLF — which consists of eight different pension schemes, with the largest being the Labor Pension Fund and Labor Retirement Fund — stood at NT$5.56 trillion ($172.9 billion), it announced on Tuesday (Nov 1).
Amid the current market downturn, its investment losses were NT$512.5 billion, or -9.87% of investment return, in the nine months ended September.
As a result, all of its investment strategies, including the new ESG mandates, have been under great pressure. There was even market speculation that the latest domestic ESG stock mandate is the pension manager’s move to support the local stock market.
In the latest investment result announcement on Tuesday, BLF had to counter the speculation and explain to the public that their withdrawal of the pension savings will not suffer the same level of losses, since there’s a minimum return guaranteed against local banks’ two-year time deposit rate.
“It is just normal asset allocation, and the bureau reiterated that it is not to support the local stock market as speculated,” BLF said.
Noting that BLF’s average annualised return rate throughout the past 10 years is still sound, at 4.27%, it pledged to continue prudently monitoring the risk tolerance of the funds and adjust asset allocation and investment strategies in a timely manner.