Scottish Widows has invested £2bn of pension fund assets to become the inaugural investor in BlackRock’s authorised contractual scheme (ACS) Climate Transition World Equity Fund.
The initial investment reflects growing investor demand for asset allocations that incorporate an assessment of climate change-related risks and opportunities.
The fund will use a data-driven investment approach to measure a company's exposure and management to low-carbon transition risks and opportunities.
Companies will be underweighted where they are less equipped to prepare for the transition, while those best equipped will see an increased investment.
The fund is diversified across sectors, regions, and business maturities, recognising that a transition to a low-carbon economy would impact widely.
However, BlackRock said it would exclude investments in controversial and nuclear weapons and UN Global Compact breaches. It will also disinvest from companies where civil firearms, tar sands and thermal coal comprise more than 5% of revenues. However, PP understands a broader divestment approach will not be utilised outside of these sectors.
Companies will be assessed via a systematic process to deliver a scoring methodology, with the portfolio then managed through an optimised process off the MSCI World Index parent benchmark. BlackRock said the approach allowed both the management of risk contracts and cost effectiveness for investors.
The fund uses a five-pillar framework based on carbon risks and opportunities, looking at energy production, clean technology, energy management, water management, and waste management. Each company will be given a single climate transition assessment, translated into a score, based on these pillars.
Scottish Widows head of pension investments Maria Nazarova-Doyle 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 ESG risks into a portfolio can have a meaningful impact on financial performance."
Earlier this year Scottish Widows launched a responsible investment team, headed up by Nazarova-Doyle, in order to "meet customers' evolving values and beliefs", with it then debuting a responsible investment framework the following month.
BlackRock head of UK Sarah Melvin 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. This marks another milestone in BlackRock's commitment to helping clients build sustainability into their portfolios."
Last week, Nest announced it would pivot its default pension strategy towards a net-zero investment portfolio, aiming to achieve the goal by 2050. The master trust said at least £5.5bn of equities would be placed in climate aware strategies, while investments in thermal coal, oil sands, and arctic drilling would be phased out over this decade.
PP understands the BlackRock fund will not undertake the same phase approach, and that thermal coil, oil sands exclusions, and civil firearms form part of a standard screen against controversial activities that present an investment risk due to regulatory and societal trends.
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