Aegon has incorporated ESG into its £19bn TargetPlan defined contribution (DC) default fund for its master trust and group personal pension plan.
TargetPlan is part of the DC platform and administration businesses Aegon acquired from BlackRock last year. The ESG component has been added via BlackRock's range of target date funds, called LifePath.
ESG allocation for the TargetPlan default, named the Aegon BlackRock LifePath Flexi fund, is expected to grow to around 10% to 30% for LifePath investors, with the upper limit for customers planning to retire from 2050, Aegon said.
The firm noted that the introduction of the ESG allocation - which tracks the MSCI World ESG Focus Low Carbon Screened Index - will not impact charges, investment objectives, or the benchmark of the LifePath portfolios.
Aegon investment director Nick Dixon said this is a "positive development" for BlackRock and Aegon, particularly ahead of upcoming regulations coming into force on 1 October, which demand trustees set out their approach to integrating ESG into their investment policies.
He said: "BlackRock has taken a sensible ESG approach, embedding ESG discipline into LifePath while maintaining low costs though index tracking.
"There's also a need to ensure scheme members have a smooth transition into ESG investing without performance disruption, which is why the position is being built through cash flow to minimise frictional costs. This is a key consideration for BlackRock in making this change."
According to BlackRock, the investment performance and risk should remain in line with the current benchmarks.
Blackrock lead investment strategist for Europe, the Middle-East and Africa retirement solutions Dominic Byrne added: "In the face of upcoming regulation and a rapidly changing pension landscape, it is crucial for schemes to build robust defaults that can stand the test of time and deliver outcomes suited to the investment interests of today's DC savers.
"We are delighted to offer members of Aegon's TargetPlan schemes the ability to align their investment decision-making with their values by incorporating ESG considerations into LifePath UK."
Aegon received approval to continue to operate in the master trust market earlier this month from The Pensions Regulator. This came after it announced the master trust now manages over £1bn in savers' assets in its overall European life business.
Last week, 76 trustees and chief investment officers from UK schemes with combined assets of £367bn signed a pledge to push asset managers to take more action to help combat climate change.
However, a Sackers survey earlier this month found schemes are still dissuaded from integrating ESG-conscious investments into their portfolios due to lack of evidence on performance.
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