National Employment Savings Trust, London, will move an additional £5.5 billion ($7 billion) of its default fund's equity investments into a "climate-aware" strategy, under a new climate investment policy unveiled Wednesday.
All of the fund's developed markets equity investments are moving from pooled funds to a segregated account run by UBS Asset Management, a spokesman confirmed.
The £12 billion U.K. multiemployer defined contribution plan is also strengthening its engagement efforts by putting a requirement on its portfolio companies to phase out activities linked to thermal coal, oil sands and arctic drilling by 2025 or create a clear plan to phase them out by 2030.
NEST will immediately divest portfolio companies that derive more than 20% of their revenues from activities linked to coal, oil sands and arctic drilling before year-end under its new climate policy and companies that similarly derive 10% of their revenues by 2023.
NEST will additionally increase focus on investing in companies that are developing corporate strategies based on renewable energy and low-carbon technologies.
The fund also expects its existing fund managers to align the portfolio with efforts to limit global temperature increases to 1.5 degrees Celsius and give them three years to show alignment with the expectations.
NEST's managers will be expected to exercise voting rights and engage to positively influence portfolio companies.
"These expectations will become a requirement of our standard tender process for new mandates, and managers that cannot demonstrate their commitment to meeting these expectations will not be selected," the policy said. Managers will be assessed annually.
"Just like coronavirus, climate change poses serious risks to both our savers and their investments. It has the potential to cause catastrophic damage and completely disrupt our way of life," NEST CIO Mark Fawcett said in a news release. "No one wants to save throughout their life to retire into a world devastated by climate change. As the world's economy slowly recovers from coronavirus, we want to ensure this recovery is a green one. We have a unique opportunity to support sustainable growth and transition towards a low-carbon economy."