National Employment Savings Trust, London, will invest in a new climate-aware strategy integrating climate-change risk into its default fund, developed with and managed by UBS Asset Management.
The UBS Life Climate Aware World Equity Fund will be one of NEST’s “building block” strategies in the £1.3 billion ($1.6 billion) retirement plan’s structure. “This move sends a strong message to companies NEST invests in that it expects to see measurable progress toward environmental sustainability,” said a UBS news release.
The strategy aims to deliver returns broadly in line with the FTSE Developed index, and invests along a rules-based approach. It has three key features: It applies a positive tilt to increase exposure to companies identified as vital to combating climate change, such as renewable energy, or those making necessary changes to transition to a low-carbon economy; a negative tilt to reduce investment in companies that are heavy emitters of carbon, have fossil-fuel reserves or are not making the changes needed to meet emission reduction targets; and a concentration on voting and engagement activities to improve companies that are most in need of adapting their business models to meet climate-change goals.
Compared with the FTSE Developed index, the strategy is targeting at least 40% higher exposure to companies generating renewable energy and supporting technology. It is also targeting a 30% tilt toward those companies most aligned to meet industry carbon reduction targets in line with the 2-degrees scenario, the concept of limiting the average global temperature increase to 2 degrees Celsius; and a 50% reduction in carbon intensity within its portfolio.
NEST is built around three phases: foundation, for younger participants; growth; and consolidation, for those approaching retirement. A NEST spokeswoman said the UBS fund will apply across its default range of phases: 20% of global developed markets equities holdings in the growth phase, and 30% in the foundation phase. The strategy will also apply to a separate NEST fund choice, its high-risk fund. The spokeswoman said overall, the strategy applies to about 10% of total investments in the NEST retirement-date funds.
“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, chief investment officer at NEST, in the news release.