'NEST, the UK government-backed defined contribution (DC) master trust, is allocating a portion of the assets in its default strategy to a new “climate aware” fund managed by UBS Asset Management. It seeded the fund with around £130m (€154m), representing roughly 20% of its current developed equities portfolio and 10% of total investments in the default strategy. It is intended to address risks and capture opportunities associated with the move to fight climate change. The UBS Life Climate Aware World Equity fund tracks the FTSE Developed Index, but over- and underweights companies depending on their alignment with the transition to a low carbon economy. For example, a positive “tilt” will be applied to companies providing renewable energy or those making changes to meet targets in line with the internationally agreed goal of keeping global warming to 2ºC above pre-industrial levels. (UK's NEST adopts ‘climate aware’ fund for default strategy, 24 Feb, IPE)
It is our fiduciary duty to act on behalf of our members: In an oped in Pensions Expert NEST CIO Mark Fawcett explains the rationale for the move: 'In 2015, Nest was one of more than 400 investors to sign the global investor statement on climate change as part of the Paris pledge for action. This statement makes explicit the risks of both the physical impacts of climate change and the policy measures that will be needed to tackle them. By signing, Nest agreed to take concrete steps to reduce greenhouse gas emissions and build resilience against climate change. Based on extensive research over the past four years, it is our fiduciary duty on behalf of our members to take the kind of action outlined in the pledge.' (Why Nest is factoring in climate change, 1 Mar, Mark Fawcett in Pensions Expert).
Active voting and engagement policy: 'Despite it being a tracker fund it will apply an active voting and engagement policy. This will concentrate on companies that need to adapt their business models to meet climate change goals.' (IPE). NEST 'worked closely with UBS on developing the new fund, saying existing offerings in the marketplace did not meet its specific needs.' (Influential UK workplace DC scheme NEST seeds new UBS climate tilt fund, 24 Feb, Responsible Investor ($)). At the launch Mark Fawcett said: "If you consider that our youngest members are 17 or 18 years old, and we are going to be investing for them for about 40 years, then things like climate change are going to be really important factors."(Responsible investing matters to youngest Nest members, 27 Feb, FT Advisor)
NEST set to grow while ditching oil and gas investments: According to The Guardian 'Nest has named oil groups Shell and ExxonMobil as two of the companies in which it is set to scale back its investment, with SSE, one of Britain’s biggest energy firms, one of those likely to be a beneficiary of the new strategy.' (Government pension scheme begins ditching oil and gas investments, 24 Feb, The Guardian). The Guardian report NEST now has over 4 million members, while the FT says that 'the pool of assets managed by Nest, which currently stands at around £1.5bn, is expected to grow substantially, as most UK workers will eventually be automatically enrolled into a workplace pension scheme by their employer. Monthly contributions from new and existing members will lead to significant growth in the new climate-aware fund.' (UK workplace pension invests in climate-aware fund, 24 Feb, Financial Times ($)). NEST was set up by UK government as part of auto-enrollment workplace pension reforms, with a public service obligation to accept any employer. In July 2016 NEST had 3.3 million members, and in Sept 2016 had £1.2bn assets under management. See also Business Green, FT Advisor, ImpactAlpha, EnergyVoice, Pensions Expert, and Professional Pensions. The move follows announcement in November 2016 that HSBC are investing £1.85bn in a new climate-friendly Legal & General IM fund (see Chronicle 5 Dec 2016).