Pioneering carbon efficient fund backed by giant BT fund ‘outperforms benchmark’

A groundbreaking carbon efficient fund adopted by the £39.6bn (€48.2bn) BT Pension Scheme (BTPS) four years ago has slightly outperformed the benchmark, according to one of the fund management firms involved.

The UK Equity Carbon Optimised Index Fund was developed by Legal & General Investment Management (LGIM), with support from the FTSE Group and environmental data firm Trucost.

It uses a custom index from FTSE and is based on carbon data provided by Trucost. It directs investment towards carbon-efficient companies and reduces fund exposure to rising carbon costs.

It was one of the first of its kind at the time although a number of similar approaches have been launched since.

Meryam Omi, Head of Sustainability at Legal & General Investment Management (LGIM), told RI that the fund is currently slightly outperforming the benchmark, although she didn’t give further details. She added that since its launch, LGIM had launched other funds in the equity space looking at carbon emissions and carbon reserves.

It comes as LGIM has called for a healthier debate on energy transition. Speaking at a press briefing, Omi said she found it disappointing that investors shied away from a true debate on the current energy system and what that would mean for long-term investors.

“We are still largely in denial over the two major forces, climate policy and technological progress that are changing the dynamic of our energy use.

“Tackling climate change is not about losing financial value. It is about helping to build a much healthierenergy system. If tackled holistically and strategically, our investments would benefit.”

LGIM’s October ‘Fundamentals’, a regular economic and investment commentary, focuses on the energy transition and the role of investors. It calls on investors to engage with policy, companies and look at how best to redirect capital to provide a sustainable energy system.

Omi said LGIM was already having conversations with clients around these issues, such as climate policy and the implications on energy investments. “We are talking to clients about the risk of being exposed to stranding [of assets],” she said.

Omi also highlighted that the current energy system was very expensive for governments, with $541bn in global fossil fuel subsidy costs and billions spent on the side effects of fossil fuels, such as air pollution and road damage.

She added that the price decline for solar and wind had changed the market.

Omi said: “There is a huge amount of change. The transition cuts across multiple investments: renewables, chemicals, automobiles, technologies. Opportunities are everywhere. We need to direct capital into these opportunities as it makes sense.”

UK’s insurer Legal and General, LGIM’s parent company, has said it wants to moves into renewables. Its chief executive Nigel Wilson has said it wants to make more direct investments into clean energy. It currently only has invested £100m in solar.