HSBC’s £1.85bn UK scheme takes new LGIM climate tilted fund as DC default

Fund launch comes as investor survey unveils demand for more responsible fund products.

The £1.85bn (€2.1bn) UK pension scheme of HSBC Bank, one of the country’s largest corporate plans, has opted to make a new investment fund with a climate change tilt launched by Legal & General Investment Management (LGIM), the UK fund manager, the default option for its defined contribution plan, in a major step for such a retirement scheme. The move was welcomed by Philip Hammond, the UK Chancellor of the Exchequer who called it “a ground-breaking fund”. The HSBC scheme has invested into LGIM’s Future World Fund, a multi-factor global equities fund that also deals with climate change risks, which was launched today (November 7). Mark Thompson, Chief Investment Officer at HSBC Bank UK Pension Scheme, said: “We believe this fund will offer our members a better risk-adjusted return, incorporate greater climate change protection and deliver improved company engagement. This is a mainstream fund, the new normal.”
The launch of the fund follows an LGIM survey of UK savers where a high number expressed a desire for their assets to be managed responsibly. In the poll of 1,681 UK savers (of which 1076 were either members of defined benefit or defined contribution schemes) during October, 81% expressed their support to invest their corporate pension scheme into responsible companies.
Significantly, 95% said they saw it as their fund managers’ responsibility to more actively guide companies towards a sustainable pathway. However, even though the great majority of the survey participants said they wished tosupport the building of a low carbon future, 86% said ESG considerations should not happen in exchange of risking returns.
LGIM says that it was able to identify the world’s largest companies within the oil & gas, mining, electric utilities, auto, banks, insurance and food retail sectors, which it says are at the core of a shift to a low carbon economy.

“This is a mainstream fund, the new normal.”

It has given a climate pledge for its new fund through which it commits to engage with the companies in these sectors to reach certain climate goals, and, if the companies don’t respond, divest from those not able to meet a set of minimum criteria set by the manager.
The fund tracks the FTSE All-World ex CW Climate Balanced Factor Index, which has underweight exposure to companies with high emissions and fossil fuel assets and overweights companies generating significant income from low carbon solutions.
Further results of the LGIM survey were that only half of the participants found the communication they received on investment was extensive. An overwhelming majority of the 95% of the pension scheme members said they wished for more information on the scheme’s philosophy and actions, as well as details on where their money is invested and its impact.
When asked about deciding among different pensions options, 76% said that they would opt for a choice that is more responsible.