Osmosis wins £4.5 billion green transition mandate as UK fund manager

Pensioenfonds PGB awarded contract for one of the largest ESG mandatesLondon-based boutique asset manager Osmosis has won a contract to run a $4.5bn sustainable investment strategy on behalf of a Dutch state pension fund in one of the largest allocations of its type ever to be awarded.

Osmosis will manage the bespoke global equity portfolio for Pensioenfonds PGB. It aims to deliver greater environmental benefits and better returns than the MSCI World Index by investing in companies with high scores on metrics such as carbon emissions and water consumption.

Osmosis’ chief executive officer and co-founder Ben Dear said that investors don’t have to sacrifice their financial returns to achieve emission reduction targets or other environmental goals.

Dear stated that the mandate would target higher risk-adjusted return by investing in resource efficient companies. This will also result in a reduction of more than 50% in carbon emission, water use and waste creation compared to the Pensioenfonds’ current equity portfolio.

Osmosis will manage assets worth $9bn more than before the mandate. Osmosis already has similar ESG strategies to fund the endowment fund at Oxford University, Australia’s Commonwealth Superannuation Corporation, the Danish pension fund PKA, and Imas. This foundation invests for Ikea’s charitable arm.

This mandate is a close relative to Osmosis’ $730mn Resource Efficient core equity fund. It includes some exclusions as specified by Pensioenfonds PGB.

Since its launch in May 2017, the fund has generated annualised returns netless fees of 9.6 percent, compared to the 8.7 percentage for the MSCI World index over the same period.

The contracts secured by Osmosis were awarded to three ESG mandates. They are bigger than those granted to Japan’s Government Pensions Investment Fund or the UK’s Universities Superannuation Scheme. According to MandatWire, a data provider that is part of FT, the three awards are instructions from the pension funds to the incumbent managers to transfer an existing pot of cash from a non ESG portfolio to an ESG strategy.

As more pension funds adopt net Zero emission targets, ESG mandate awards are rising rapidly. Some mandates give instructions to existing managers to transfer existing funds into an ESG strategy to prevent new inflows to fund companies. Osmosis seems to have won the largest ESG mandate that has ever been awarded to an asset manager. Sophie Wilcock, MandateWire’s managing editor, said:

Pensioenfonds PGB stated that it had awarded Osmosis the contract as part of a climate action plan. This plan was approved in December 2022 and aims to cut carbon emissions by half within its equity portfolio as early as 2030.

Pensioenfonds PGB now has total pension assets in excess of EUR28.8bn ($30.1bn). The Osmosis contract is about one-third the equity portfolio listed by Pensioenfonds PGB.

Pensioenfonds PGB now considers financial returns, climate risk, and sustainability factors equally when assessing investment opportunities. It was established in 1953 as a retirement income for printworkers, and has expanded to include workers in 15 different sectors of the Netherlands.

European regulators are pushing pension funds to address climate change risks faster due to concerns that retirement savings pools could suffer heavy financial losses if they don’t make the transition to a low carbon economy.According to the European Insurance and Occupational Pensions Authority (EIOA), a “disorderly process” could result in the loss of around 12.9 percent of EU’s pension assets. The results of the first climate stress test of Europe’s pensions industry were published by the EIOA in December.

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