The £711m Scottish Borders Council Pension Fund has joined Morgan Stanley Investment Management (MSIM)'s global sustain strategy.
It is the first fund in the Local Government Pension Scheme (LGPS) to commit to the strategy, which invests in a portfolio of high-quality companies and aims to be tobacco-, alcohol-, and fossil fuel-free.
The fund was launched in 2018 in a bid to cater to a growing focus on environmental, social and governance (ESG) issues. Scottish Borders did not disclose how much it had invested in the strategy.
Its pension fund committee chairman, councillor David Parker, said: "The [fund] believes that a positive approach to ESG issues can positively affect the financial performance of investments whereas a failure to address these considerations can have a detrimental effect.
"The fund is therefore pleased that an asset manager we have partnered with for seven years is now offering an investment strategy that fully integrates ESG principles while delivering on the long-term needs of our pension funds."
The LGPS fund invests £711m of assets on behalf of 18 participating employee organisations.
MSIM international equity team head William Lock added: "Today's more uncertain world demands a focus on material ESG risks and opportunities and active long-term engagement with companies.
"We view understand and incorporating ESG as essential to long-term compounding. There is demand for high-quality, ESG-integrated funds to meet clinets' investment requirements without any compromise to returns."
He said the global sustain strategy is its "solution" for this challenge.
More and more pension schemes are focusing on ESG as part of their core investment offering, but a ShareAction report, published last month, found that there are still many that are failing to recognise the long-term nature of climate-related risks.
Last September 2018, the Department for Work and Pensions introduced regulations which will require pension trustees to consider ESG factors as part of their investment processes, while a similar package of changes is expected for independent governance committees.
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