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What Ilmarinen and Phoenix Group can teach us about climate-aligned index investing

What Ilmarinen and Phoenix Group can teach us about climate-aligned index investing

Elena Vydrine

Senior Investment Specialist – Public Markets
10.09.25

We spotlight Phoenix Group and Ilmarinen, two asset owners actively reshaping their index investment strategies to lower portfolio emissions while maintaining diversified exposure.

Index funds and Exchange Traded Funds (ETFs) now represent 44% of long-term assets and 60% of climate funds in Europe. Alongside product innovation in terms of portfolio construction and engagement strategies, index funds have a strategic role in driving emission reductions for investors who have committed to net zero in line with the Paris Agreement.

Our recently published paper on index investing aimed to offer approaches for consideration, to help those developing individual index investing strategies. It was supported by two case studies from Phoenix Group and Ilmarinen to showcase practical implementation examples.

Phoenix Group demonstrates how bespoke climate indices can support decarbonisation targets and create sustainable index fund options for beneficiaries, including as part of default investment workplace pension funds. Ilmarinen’s example shows how shifting benchmarks and adopting climate-aware ETFs can steer portfolios towards lower emissions while maintaining diversification.

Together, they highlight similar yet differentiated approaches for investors aiming to align index strategies with net zero goals.

Phoenix Group: Embedding climate targets in UK pensions

Phoenix Group, the UK’s largest long-term savings and retirement business, manages nearly £300 billion in assets for 12 million customers.

In 2023, Phoenix Group published its Net Zero Transition Plan, acknowledging the responsibility and the opportunity to tackle climate change while managing risks and creating value for its customers – 90% of whom expect their money to be invested responsibly.

The plan commits Phoenix Group to delivering net zero across its portfolio, operations and supply chain by 2050 or sooner, with clear interim milestones:

  • A 25% reduction in the carbon intensity of listed equity and credit by 2025
  • A 50% reduction across all assets under influence by 2030

Recognising that almost all of Phoenix Group’s carbon footprint comes from its investment portfolio, the asset owner has pledged to invest up to £40 billion in sustainable, transition and productive assets over time.

To help achieve these goals, Phoenix Group partnered with FTSE Russell to create the FTSE Phoenix Climate Aligned Index Series. Company assessments from the Transition Pathway Initiative (TPI) incorporate forward-looking analysis into index design and – alongside Phoenix’s own engagement activities as well as those of the wider TPI ecosystem – help to create a feedback loop between investment strategy and stewardship.

The application of Phoenix Group’s exclusion policy to the underlying indices – which removes high-emitting companies lacking credible targets, to robust climate risk management – further ensures alignment with climate outcomes and the Group’s sustainability objectives. The benchmarks also aim to reduce portfolio carbon intensity by 7% yearly while reweighting towards companies aligned with climate transition pathways and those generating green revenues.

This approach aligns with IIGCC’s Net Zero Investment Framework (NZIF). The Framework is adaptable to individual contexts, offering principle-based guidance that allows investors to use credible data sources like TPI to assess asset alignment and track portfolio progress.

Beyond this index portfolio construction, Phoenix Group emphasises stewardship to drive wider system change. Its strategy integrates engagement, voting aligned with climate objectives, and collaboration across industry and policy platforms. This ensures that passive investments are not simply tracking indices, but actively contributing to real-world decarbonisation.

Phoenix Group shows how climate-aligned index investing can be embedded at scale in UK pensions, combining long-term financial resilience with the delivery of net zero targets.

➡️Access Phoenix Group’s case study on designing climate transition benchmarks

Ilmarinen: Steering equity portfolios with climate-aware benchmarks

Ilmarinen, Finland’s leading private pension insurer with €63 billion in assets, is integrating climate responsibility into its core operations to secure sustainable pensions for its beneficiaries. The fund has committed to align with the Paris Agreement by developing ambitious, asset class-specific climate roadmaps across listed direct and indirect equity, corporate bonds, and real estate.

In 2020, Ilmarinen co-developed the MSCI Climate Action Indexes with MSCI and the Singapore Stock Exchange in the absence of a suitable benchmark at that time. By early 2023, it shifted most of its listed equity portfolio – around €22 billion – to these indices, including €6.2 billion in ETFs across major markets. MSCI Climate Action indices became a flagship standard index series, developing the ecosystem of funds, derivatives and inspiring further product development in the space.

The MSCI Climate Action Index identifies companies best positioned for the low-carbon transition while maintaining balanced sector exposures and risk-return characteristics. Rather than excluding entire industries, it selects half of the companies in each sector, favouring those either emitting less than their peers or demonstrating strong transition readiness through credible targets, climate risk management, or green revenues.

Like Phoenix Group, Ilmarinen also reduce exposure to high emitters without credible climate transition plans, incentivising transparency and encouraging companies to disclose emissions and targets to qualify for inclusion.

Although not explicitly designed using NZIF, the index methodology reflects the principles of the guidance by maintaining broad market exposure while prioritising companies committed to transition. This ensures passive portfolios can support real-economy decarbonisation, a core NZIF objective.

Ilmarinen complements its index strategy with active ownership. It engages priority companies, particularly high-impact emitters, through dialogues, voting and participation in nomination committees. External managers’ stewardship practices are regularly monitored for the alignment with the objectives of the funds.

By combining climate-aware benchmarks with systematic engagement, Ilmarinen shows investors can scale index-based strategies that both protect diversification and accelerate the net zero transition.

➡️Read Ilmarinen’s practical approach to real economy decarbonisation

Takeaways for investors

As our recent discussion paper outlined, index investing can play a key role in supporting the net zero transition when climate considerations are embedded into portfolio design, engagement strategies and benchmarking choices. These case studies bring that to life.

Phoenix Group and Ilmarinen show how asset owners can translate climate commitments into action, proving that climate-aligned index strategies are both achievable and scalable. These examples and the discussion paper provide investors with a practical roadmap for implementing commitments aligned with NZIF.

NZIF can help investors support the climate transition using its suggested ‘levers of influence’. Aligning stewardship and corporate engagement with index design, fund objectives, and climate commitments can help investors scale transition efforts.


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