Scottish Widows has become the first investor in BlackRock’s new fund designed for the transition to a low carbon economy with an initial allocation of £2bn of its pension portfolios
The Authorised Contractual Scheme (ACS) Climate Transition World Equity fund will be managed by Jonathan Adams, who already runs the BlackRock’s US ESG Insights fund.
According to BlackRock, the fund is primarily designed for UK pension schemes (DB & DC) that are seeking to manage climate transition risks whilst still maintaining a diversified global equity exposure, with the ACS fund structure being tax efficient for their needs.
“While we have been managing client assets according to this fund’s research methodology since 2018, this is the first dedicated pooled fund to use the climate transition methodology,” the group said.
The proprietary methodology is a data driven approach that measures a company’s exposure to climate transition risks and opportunities, with the aim to increase investment in companies that are well prepared for this transition and reduce exposure to those that are less equipped.
The framework translates low carbon risks and opportunities into five pillars: energy production, clean technology, energy management, water management and waste management. BlackRock scores companies on each metric to arrive at a single Climate Transition (CT) assessment relative to peers in the sector.
The fund invests across sectors, regions and business maturities in an effort to create diversification. It will also incorporate a number of exclusions: controversial and nuclear weapons; civilian firearms producers and where revenues are higher than 5%; UN Global Compact breaches; exposure to tar sands, thermal coal where revenues are higher than 5%.
The fund uses a systematic process to deliver the scoring methodology, and then manages the portfolio through an optimised process off the MSCI World index parent benchmark in an effort to manage risks while keeping the portfolio cost-effective.
Sarah Melvin, head of UK at BlackRock, said: “The global shift to zero and low carbon energy sources is underway and is accelerating. The BlackRock Climate Transition World Equity fund expands our range of sustainable investment solutions, adopting an innovative data driven research approach to sustainability and climate change, and aims to deliver long-term value to clients based on companies’ readiness to transition to a low carbon economy.”
The fund, which Scottish Widows helped design, will be the first one geared around climate transition in its pension portfolio, taking up 10% of the equity allocation in its workplace default option, Pension Portfolio funds, and its Retirement Portfolio funds.
Maria Nazarova-Doyle, head of pension investments at Scottish Widows, said: “Offering customers more sustainable investment choices, and challenging companies in which we invest to behave more sustainably and responsibly, is a central part of our strategy.
“Our work with BlackRock to design this new fund, together with our significant investment, will help to engender positive change in the industry; incorporating environmental, social and governance risks into a portfolio can have a meaningful financial impact on performance.”