UBS’s UK defined contribution (DC) scheme and the local authority pension fund for Tyne & Wear have allocated £250m (€273m) and £650m, respectively, to equity index funds with climate change-related “tilts”.
The £1.6bn DC section of UBS’s UK scheme has switched the allocation of around a quarter of the main fund in its default investment option to the UBS Asset Management Climate Aware Fund.
The Tyne and Wear defined benefit fund, meanwhile, this week announced it had invested £650m in the “Future World Index Equity Fund” range, which is managed by Legal & General Investment Management (LGIM).
At UBS, the move follows a member survey. According to a UBS spokesperson, it asked members whether they were interested in investing in a more sustainable fund and what they would be willing to pay for it.
The answer was that they were interested but wanted a low fee option, so the trustee requested a review of the index fund market from its investment adviser Mercer.
A shortlist of managers was presented and based on the trustee selection criteria the UBS fund was deemed the appropriate choice.
Mark Thompson, chair of the UBS UK DC scheme’s trustee investment committee, said: “Without increasing costs or limiting the upside on expected returns, the trustee concluded that the investment in the sustainable equity fund would provide some protection to member’s pension pots from the negative effects of climate change – and enable them to potentially benefit from exposure to the companies taking positive steps to address climate change.
“In this way, our fiduciary duty to seek the best potential returns for members aligns well with the increasing interest among them in sustainable investment.”
The Climate Aware fund tracks the FTSE Developed Index, but over- and underweights companies depending on their alignment with the transition to a low carbon economy.
UBS Asset Management’s engagement team liaises with those companies subject to a negative “tilt” in a bid to get them to improve their footprint.
The LGIM Future World fund range is designed to favour companies that have higher governance standards and aim to achieve positive social and environmental impacts, including companies which are less carbon-intensive or earn green revenues.
The funds may exclude companies if a targeted engagement process pursued by LGIM – dubbed the Climate Impact Pledge – does not yield the desired results.
Councillor Eileen Leask, chair of the pensions committee at South Tyneside Council, which adminsters the £10.7bn Tyne & Wear pension fund, said: “We believe that this allocation will both deliver better returns for our members over the long term, while also helping to build a world in which they will be able to most enjoy their retirement.”
James Sparshott, head of local authorities at LGIM, added: “As a longstanding client of LGIM, the Tyne and Wear Pension Fund has always been an active investor, regularly engaging with our investment stewardship team.
”The decision to invest a significant portion of assets into our Future World fund range marks another significant step in our partnership to deliver positive change.”
The first LGIM Future World fund was developed in collaboration with HSBC Bank UK Pension Scheme, which adopted a multi-factor fund as the equity default option for its DC scheme in 2016.
The UBS AM Climate Aware Fund was seeded by DC master trust NEST in 2017.
Tyne & Wear pension fund is due to merge with the Northumberland local authority pension fund.