One of the UK’s biggest defined contribution (DC) master trusts is to migrate part of its default investment option to environmental, social and corporate governance (ESG) focused strategies by the end of the year.

The £2bn (€2.3bn) LifeSight scheme, run by Willis Towers Watson, will reallocate roughly half of its equity holdings in its default fund to track the MSCI Adaptive Capped ESG Universal index and the Robeco Global Sustainable Multi-Factor Equities index.

The MSCI benchmark was developed by Willis Towers Watson and MSCI. The consulting giant said this index “spreads capital and risk more evenly between stocks compared to a traditional index strategy”, while backing companies with strong or improving ESG scores in developed and emerging markets.

The Robeco strategy was systematic and based on an assessment of the valuation, quality, momentum and volatility of stocks as well as their ESG attributes.

David Bird, head of proposition development for LifeSight, said the shift had been “in our thinking for some time”.

“The construction of these two vehicles has enabled us to confidently make this substantial change to the default fund’s asset allocation, and keep LifeSight’s investment approach ahead of the curve and still offering great value for members,” he said.

“The DC investment world faces a range of challenges. Adding ESG’s risk profile to our investment mix supports the growing member and employer appetite for sustainable investment, while maintaining the returns they need for retirement. 

“ESG factors have increasingly been on the investment agenda for DC trustees, so they need to be thinking about where it fits into their scheme’s glidepath, assessing member demand and developing the right strategies to deliver for them.”

Willis Towers Watson claimed that LifeSight was the “first master trust of its kind” to have made ESG-related investments a “major” part of the default option for members, although NEST last year allocated money from its default option to a “climate aware” fund run by UBS Asset Management.

NEST also applied an ethical screen to its commodity fund, launched earlier this year.

HSBC’s UK DC scheme – a single-employer fund rather than a master trust – adopted an ESG fund for its default in 2016.

Earlier this month, Schroders launched a sustainable equity factor-based fund targeting the UK DC sector.