European investors are putting their money where their mouth is lately when it comes to committing assets to climate-adjusted, or “green” investment strategies. And, at the same time, they are learning it is possible to precisely target various emerging green economic factors through using a smart beta index-based approach. This reflects their beliefs that both risk premia factors and climate parameters are important components when assessing long-term risk adjusted returns.
Legal & General Investment Management recently announced the introduction of the Legal & General World Fund, which is based on the FTSE All-World ex CW Climate Balanced Factor Index. In addition to presenting balanced exposure to value, quality, low volatility and size market factors, this new FTSE Russell index applies a range of climate change factors such as carbon efficiency, exposure to fossil fuel and exposure to companies with green revenues. The result is a balanced market factor index with a tilt toward companies likely to benefit from the transition to a low-carbon economy. The new LGIM Fund has been selected by the HSBC Bank UK Pension Scheme as the basis for their £1.85 billion defined contribution (DC) default equity fund.
David Harris, Head of Sustainable Business, London Stock Exchange Group:
“This new index combines a smart beta approach with a focused set of sustainability parameters. It is a new and exciting way for investors to integrate ESG (environmental, social & governance) factors into passive investment strategies, and sets a new standard globally for both corporate and defined contribution pension schemes.”
Mark Zinkula, CEO of Legal & General Investment Management:
“It is crucial that pension funds are able to offer their members appropriate investment products while helping to manage climate risk. Our Future World Fund which combines a multi-factor index approach with climate change considerations is aimed at doing just that.”
 Source: FTSE Russell. Data as of October 31, 2016 and represents hypothetical returns. Past performance is no guarantee of future results. Please see the disclaimer for important legal disclosures.
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