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Laxman Pai, Opalesque Asia:

Swedish pension fund Forsta AP-fonden, better known as AP1, has seeded what it describes as "the next generation of index funds" for emerging markets responsible investors, in partnership with Legal & General Investment Management (LGIM).

The L&G Emerging Market Equity Future Core fund will link the allocation of capital to clear sustainability requirements for companies it will invest in.

According to a press release from the SEK355bn ($40bn) public 'buffer fund', the rationale behind the launch is to meet institutional investors' need for index-linked funds with an extended sustainability profile.

The Fund is available to institutional and wholesale investors in Europe, it said. The fund is completely fossil-free, which is in line with the AP1's decision to divest from fossil fuels to limit exposure to climate risks.

LGIM, the provider of passive investment solutions with index assets of €436bn, is developing a new generation of index funds that integrates ESG and leverages LGIM's active ownership capability and engagement with the underlying companies in the index, including through the use of voting.

"The capital will be allocated based on how well companies score on ESG criteria. Those with good scores will receive a higher weighting compared to their market capitalization, while those with poor scores will be weighted down. The ESG scores companies receive are fully transparent, enabling them to be informed on what they......................

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