BMO Global Asset Management has begun excluding companies with fossil fuel reserves from some of its responsible funds, with an aim to completely divest across the range by 2020.
The firm has updated its climate change policy to enable its investors to support transitioning to a low-carbon economy. It will now more heavily invest in companies "operating in a sustainable way or delivering solutions to global challenges".
The approach has been rolled out for five of its responsible funds, covering UK equity growth, UK income, global equity, sterling bond, and global emerging markets equity.
The policy will then be adopted across all of its responsible funds, which manage around £1.5bn of assets, from 1 January 2020.
Governance and sustainable investment team director Vicki Bakhshi said investors were increasingly demanding this kind of action from asset managers.
"We see a growing investor demand, from both institutions and individuals, for investment strategies that allow them to avoid investment in these companies, yet there is a distinct lack of choice for such strategies in the market," she said.
"By implementing this policy not just on a single fund but our entire responsible range, we are offering a set of investment strategies that allow investors to align their beliefs with their desire for long-term returns."
She added the asset manager will use its voice to influence companies and policy-makers to adopt more environmentally-friendly strategies.
The policy change came as research by campaign group Fossil Free last month showed around $5trn of institutional assets have a divestment strategy in place.
ShareAction chief executive Catherine Howarth said this action will help build trust in pensions.
"What is interesting with this BMO decision is the combination of financial and ethical arguments that led to it," she said. "UK pension funds, most particularly auto-enrolment funds that track equities indices, remain dangerously over-exposed to the type of high carbon firms from which BMO has chosen to divest.
"A growing number of pension savers are cottoning on to their carbon risk in their pension fund, and it does nothing to build trust in the UK's pensions industry."
Along with ClientEarth, ShareAction has urged schemes and providers to use their voting power at company annual general meetings to press for more long-term strategies, particularly in relation to climate risk.
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