Scottish Widows is investing £2bn from its pension portfolios into BlackRock’s new Climate Transition World Equity Fund.
This is the first investment into this fund, which Scottish Widows helped design.
The fund takes a data driven investment approach that measures a company’s exposure and management of transition risks and opportunities in the shift towards a low carbon economy.
BlackRock’s investment approach aims to increase investments in companies that are well prepared for this transition and to reduce exposure to those that are less well equipped.
The fund offers portfolio diversification by providing exposure to companies across sectors, regions, and business maturities. The fund manager points out that transition to a low carbon economy won’t just affect oil and gas companies, but all sectors – including hospitality, transportation, and healthcare.
Scottish Widows, which manages the long-term savings of around six million customers, says this strategy reflects growing investor demand for innovative solutions that incorporate an assessment of climate change-related risks and opportunities.
The fund will be managed by Jonathan Adams who will draw research insights from BlackRock Sustainable Investing team.
The fund’s climate transition investment approach has a framework that translates low carbon risks and opportunities into five pillars: energy production, clean technology, energy management, water management and waste management.
To generate an investment signal, BlackRock will score each company’s management of the five pillars into a single Climate Transition (CT) assessment, relative to the peers in their sector. The fund also incorporates a number of exclusions including controversial and nuclear weapons, civilian firearms producers, and companies with exposure to tar sands, thermal coal (where revenues are greater than 5 per cent).
The fund uses a systematic process to deliver the scoring methodology, and then manages the portfolio through an optimised process off the MSCI World Index parent benchmark. This allows the portfolio management team to manage risk constraints, while maintaining cost-effectiveness for investors.
Scottish Widows head of pension investments Maria Nazarova-Doyle says: “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 environmental, social and governance risks into a portfolio can have a meaningful financial impact on performance.”
BlackRock head of UK Sarah Melvin adds: “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.”
BlackRock vice chairman Philipp Hildebrand adds: “The world is undergoing a rapid transition to a low-carbon economy. This transition — driven by climate change, technological innovation, consumer preference and regulatory and policy development — is going to create winners and losers, and investors need to be prepared.
“With an investment strategy developed to seek to identify global opportunities and risks at an early stage, the Fund is designed to help investors benefit from this historic shift while also contributing to positive environmental outcomes.”
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