The UK’s National Employment Savings Trust (NEST) is investing £130.3 million ($159 million) in a new climate-aware fund managed by UBS Asset Management “to respond to the investment challenges of climate change and the global transition to a low-carbon economy.”
NEST is a defined contribution workplace pension plan set up to facilitate automatic enrollment as part of the government’s workplace pension reforms. The new UBS Life Climate Aware World Equity fund is managed by UBS Asset Management and developed in partnership with the NEST in-house team. The fund’s goal is to provide returns similar to the FTSE Developed Index, and has a rules-based investment approach with three key features:
- It increases investment in companies identified as vital to combating climate change
- It reduces investment in companies that are heavy carbon emitters, have fossil fuel reserves, or are not making changes needed to meet emission reduction targets
- It concentrates voting and engagement activities on improving companies that most need to adapt their business models in order to meet climate-change goals.
“As responsible long-term investors on behalf of our members, we can’t afford to ignore climate-change risks, and we’ve committed to being part of the solution,” said Mark Fawcett, NEST’s chief investment officer. ‘Today, we’re taking a vital step towards readying our members’ portfolios for a lower carbon future.”
The fund targets at least 40% higher exposure to companies that generate renewable energy and supporting technology, a 30% tilt toward companies most aligned to meet industry carbon reduction targets in line with the 2 degree scenario; and with a 50% reduction in carbon intensity.
“This combines innovative rules to overweight those companies making a positive contribution towards limiting climate change,” said Ian Ashment, head of systematic & index investments at UBS Asset Management, “and reducing carbon while under-weighting those which are least aligned to meet industry carbon-reduction targets.”
NEST is allocating 30% of the equities in the Foundation Phase of its NEST Retirement Date Funds to the UBS Life World Equity Tracker Fund. NEST said that because younger plan members have a longer investment time horizon, and are more likely to be impacted by the transition to a lower-carbon economy, it is investing the fund in different proportions based on the maturity dates of the NEST Retirement Date Funds. As a result, younger members will have greater exposure to this fund than older members.
“The launch of NEST’s new climate-aware strategy is a great example of how investors can incorporate climate issues into their portfolios to enhance returns,” said Fiona Reynolds, managing director of the Principles for Responsible Investment (PRI). “We need to remember that while climate change presents risks to portfolios, it also presents opportunities. Investment vehicles that recognize this fact will be welcomed by investors.”
By Michael Katz