LGIM UK Equity Carbon Optimised Index Fund is designed for pensions investors concerned about carbon risk, which in turn is a good proxy for energy risk. The fund aims to achieve returns close to the FTSE All-Share index while reducing exposure to financial risk from the transition to a low carbon economy and rising energy costs. The fund is sector neutral weighted compared to the FTSE All-Share but is around 20% less carbon intensive*.
The Fund has been developed by Legal & General Investment Management using a custom index created by FTSE Group based on carbon data provided by Trucost.
Neil McIndoe, Director of Partnerships at Trucost said: “Rising energy prices and the recent news that Drax slipped by 4.3% in response to the Budget measure to set a price floor for carbon credits, makes it increasingly important to enable investors to manage this financial risk.”
Mike Craston, Managing Director, Institutional Business, LGIM said: “LGIM has launched this fund in response to client demand for a carbon efficient tracker fund. We have worked closely with the BT Pension Scheme Management, the executive arm of the BT Pension Scheme (BTPS) to develop a fund which meets the requirements of the Pension Scheme. The fund will direct investment towards carbon-efficient companies and reduce fund exposure to rising carbon costs. Passive investors in particular should be drawn to the Index due to its lower carbon risk combined with a fund designed to deliver very low tracking error, compared to its benchmark.
“Although this fund has been developed for BTPS we are confident that the concerns that caused them to ask us to develop this fund will be shared by other pensions investors who will also invest in this fund to reduce carbon exposure risk.”
Helene Winch, Director, Head of Policy, BT Pension Scheme Management Ltd said: “As part of our ongoing analysis of the potential impacts of climate risk on our portfolio of assets, we have been actively exploring ways to efficiently allocate capital to investments that could outperform in times of higher carbon prices, particularly as a result of policy moves towards a low carbon economy. Alongside our partners of LGIM, Trucost and FTSE, the BT Pension Scheme is pleased to invest in this attractive, institutional-focused product.”
BTPS has indicated they will invest £100m into the fund.
David Harris, Director of Responsible Investment at FTSE said: “An increasing number of global institutional investors are integrating climate change considerations into their investments. The index that has been created specifically for the LGIM Carbon Optimised Index Fund demonstrates how FTSE is developing indices and custom solutions to support the integration of climate change into investments.”
The pioneering collaboration draws on LGIM’s fund management expertise, Trucost’s expertise in the calculation of corporate environmental impacts, and FTSE’s expertise in responsible investment and experience in developing market leading indices on a standard and customised basis. Trucost has been researching, standardising and validating corporate carbon emissions for over 10 years, providing LGIM with the all important ability to back-test the Fund’s performance. These tests have shown that the emissions attributable to the carbon efficient index’s components have been consistently 20% lower than the FTSE All-Share while the financial performance has closely tracked the FTSE All-Share. This gives investors the opportunity to reduce exposure to rising carbon costs in the future without sacrificing returns in the meantime.
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