The nearly £2.5bn (€3.4bn) Environment Agency Pension Fund (EAPF) has selected MSCI’s World Low Carbon Target Index as a benchmark for its £280m allocation to passive equities.

The scheme, technically part of the UK’s Local Government Pension Scheme (LGPS) system, is now a founding investor in a Legal & General Investment Management institutional passive equity fund based on MSCI’s index.

The pension fund, which provides benefits to employees of the UK’s department charged with managing and protecting environmental matters, will now track its entire allocation to passive equities via the index, which MSCI said reflects a lower carbon exposure by having overweight allocations to companies with low, or potentially low, carbon emissions.

Mark Mansley, CIO at the EAPF, said the scheme saw climate change as an investment risk issue and thus required a benchmark that took a risk-based approach rather than simple exclusion policies.

“We engaged with the industry to find a solution and felt MSCI understood the needs of institutional investors when they developed the Low Carbon Target approach,” he said.

In other news, the Isle of Wight Pension Scheme has awarded a mandate to BNP Paribas Securities Services for custody services.

The nearly £400m local government pension scheme for the Isle of Wight appointed the French bank to manage global custody, investment accounting, cash management and foreign exchange services.

The pension scheme made the appointment using the LGPS framework, which pre-selected five custodians to cut down the tender period for the government schemes.