Influential UK workplace DC scheme NEST seeds new UBS climate tilt fund

NEST moving £130m into the UBS Life Climate Aware World Equity fund

NEST, the UK workplace scheme, has seeded a new climate aware fund from UBS Asset Management that it helped to develop.

It is moving £130.3m (€154m) into the fund, which is called the UBS Life Climate Aware World Equity fund, from its existing UBS Life World Equity Fund. That is around 20% of its current developed equities portfolio and 10% of total investments in its default strategy.

It worked closely with UBS on developing the new fund, saying existing offerings in the marketplace did not meet its specific needs. NEST (National Employment Savings Trust) is still relatively small but is closely watched as it has the potential to grow into one of the leading asset owners in the UK.

The fund will look to overweight companies contributing to the transition to a low carbon economy while underweighting heavy emitters. Its biggest underweights (as at November 30 2016) were Exxon Mobil, Duke Energy and Dominion Resources. Its largest overweights were PG&E, Sempra Energy and Iberdrola.

The new fund will be a building block in NEST’s ‘fund of funds’ structure and is designed to meet the needs of NEST’s membership – some of whom are as young as 17.

“The world is changing and you need to change with it,” said NEST’s CIO Mark Fawcett, at a launch event at UBS’s new London headquarters last night. The launch was welcomed by ShareAction, the Principles for Responsible Investment and the Institutional Investors Group on Climate Change.

Ian Ashment, UBS’s Head of Systemic & Index Investments, said the return would aim to be in line with global markets. UBS is aiming for a low tracking error (0.50%) relative to FTSE Developed Index.Tracking error is the divergence between a portfolio and its benchmark.

He said it is suitable for pension funds globally, whether defined contribution or defined benefit, saying: “The fund is open for business.” UBS are open to clients looking to enter the fund on a segregated basis. It can even be customized, Ashment said. He told RI its “capacity is extremely high” and that UBS are looking for a “groundswell” of investors. The new fund reflects what RI understands is a strategic decision at the UBS group to embrace sustainability. Within the past year it has hired former RobecoSAM Chief Executive Michael Baldinger, founding PRI Executive Director James Gifford and other senior responsible investment figures. “UBS Asset Management aims to be a leader in sustainability to help meet clients’ investment needs,” said Ashment in a statement announcing the fund.

Fawcett is not a supporter of divestment, arguing that “all we’re doing is selling to an investor who doesn’t care about climate change risk”. And he said NEST didn’t use a consultant during the research and development process.

The launch is the latest low carbon partnership between an asset owner and fund manager. It follows HSBC’s UK pension fund helping to create an index and fund with FTSE and Legal & General that assessed carbon exposure and green revenues. In 2014, Swedish pension fund AP4 and France’s Fonds de Réserve pour les Retraites got behind MSCI’s Low Carbon Leaders Index. And just this month RI reported that Vermont’s State Treasurer wants to work with other “like-minded” investors to create a low-carbon passive investment vehicle.