NEST today takes decisive action to respond to the investment challenges of climate change and the global transition to a low carbon economy.

It is making an important change across its default strategy (the NEST Retirement Date Funds) by investing in a new climate aware fund managed by UBS Asset Management and developed in partnership with the NEST in-house team.

The new UBS Life Climate Aware World Equity fund will be a key building block in NEST’s ‘fund of funds’ structure and is designed to meet the specific needs of NEST’s membership. This move sends a strong message to companies NEST invests in that it expects to see measurable progress towards environmental sustainability.

The fund aims to deliver returns broadly in line with the FTSE Developed Index and has an innovative rules based investment approach with three key features:

1. It applies a positive ‘tilt’ that will increase investment in companies identified as vital to combatting climate change, for example those working on renewable energy, or that are making the necessary changes to transition to a low carbon economy. To approximate future transition path, the fund utilises climate related forward looking metrics.
2. It applies a negative 'tilt' to reduce investment in those companies that are heavy carbon emitters, have fossil fuel reserves or are not making the sorts of change needed to meet emission reduction targets.
3. It concentrates voting and engagement activities on improving companies that most need to adapt their business models in order to meet climate change goals.

This negative/positive tilt aims to move away from companies less likely to be in line with the low carbon economy and towards companies most aligned to meet industry carbon reduction targets. By looking ahead to how companies are positioned for the transition to a low carbon economy, the fund is set to reap the benefits of that shift. The fund targets: at least 40% higher exposure to companies that generate renewable energy and supporting technology compared to the FTSE Developed Index, a 30% tilt towards companies most aligned to meet industry carbon reduction targets in line with the 2 degrees scenario, and a 50% reduction in carbon intensity.

Commenting on the launch of this fund, NEST’s chief investment officer Mark Fawcett said,
‘Today we’re taking a vital step towards readying our members’ portfolios for a lower carbon future.

Last year the world reached a major milestone in recognising the risks from climate change and agreeing to tackle them. The transition to a greener global economy will take place over the next twenty to thirty years and many of our members will be saving with us for at least that long. They are shareholders in that future.

As responsible long term investors on behalf of our members, we can’t afford to ignore climate change risks and we’ve committed to being part of the solution. Through the UBS Life Climate Aware World Equity Fund we can start reducing our members’ exposure to some of the worst financial impacts. At the same time they’ll get in early in industries and technologies that’ll help the global economy move away from fossil fuels.

‘This fund breaks new ground and we’re delighted to have had the opportunity to work so closely with UBS on its development.’

Ian Ashment, Head of Systematic & Index Investments at UBS Asset Management said,
‘UBS Asset Management aims to be a leader in sustainability to help meet clients' investment needs. As they seek greater alignment between their investment policy and environmental, social and governance concerns we have developed a new rules-based investment strategy. This combines innovative rules to over-weight those companies making a positive contribution towards limiting climate change and reducing carbon while under-weighting those which are least aligned to meet industry carbon reduction targets.

NEST’s decision to partner with UBS Asset Management and to seed the fund is a great endorsement of our sustainability credentials and of our investment team. ’

Commenting on this development, Catherine Howarth, chief executive of ShareAction, said,
‘ShareAction warmly welcomes news that a portion of NEST’s default investment funds will now manage climate risks in a more systematic way, whilst tapping into the growth opportunities of the low carbon transition. This is a positive development for all of NEST’s members, particularly its younger members. Indeed, we see a strong case for this type of smart climate risk management being embedded in all of NEST’s global equities exposure, and look forward to engaging the scheme about that case.’

Fiona Reynolds, managing director of the Principles for Responsible Investment (PRI), said,
‘The launch of NEST’s new climate aware strategy is a great example of how investors can incorporate climate issues into their portfolios to enhance returns. We need to remember that while climate change presents risks to portfolios, it also presents opportunities. Investment vehicles that recognise this fact will be welcomed by investors.’

Stephanie Pfeifer, CEO of the Institutional Investors Group on Climate Change said,
‘We welcome the fact that NEST is proactively integrating climate change issues into its default strategy. It’s vital that pension funds require investment teams and managers to give greater consideration to the risks and opportunities presented by the transition to a low carbon economy.’

Notes to Editor

Key facts from NEST

• NEST is migrating £130.3m into this new fund from its existing UBS Life World Equity Fund, which represents about 20 per cent of its current developed equities portfolio and around 10 per cent of total investments in the default strategy.
• NEST is the seed investor for the fund, which it developed in close partnership with UBS Asset Management.
• We are allocating 30 per cent of the equities in the Foundation Phase of the NEST Retirement Date Funds to the UBS Life World Equity Tracker Fund. The fund is likely to be of greatest importance to younger members who have a longer investment time horizon and who are more likely to be impacted by the transition to a lower carbon economy. NEST will therefore invest in this fund in different proportions based on the maturity dates of the NEST Retirement Date Funds. Younger members will have greater exposure to this fund than older members. NEST’s use of target date funds allows us to create bespoke investment strategies for members, grouped by age, in an efficient way.
• In 2015, NEST signed the Paris Pledge for Action and the Global Investor Statement on Climate Change, which sets out steps institutional investors can take to address climate change. By signing this agreement, NEST has agreed to take concrete steps to reduce greenhouse gas emissions and build resilience against climate change. The creation of this fund is about working towards delivering on this commitment.