UK pension fund to shift £5.5bn to UBS climate fund as part of new strategy

Nest is the latest firm to commit to aligning with the Paris Agreement and becoming net-zero across its investments by 2050

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UK pension fund the National Employment Savings Trust (NEST) is to pump £5.5bn (€6bn) – its entire global exposure to development market equities – into the UBS Life Climate Aware World Equity fund, as part of an overhaul of its strategy to include a sweeping new climate change policy. 

The policy outlines the £12bn defined contribution scheme’s plan to transition to Net Zero by 2050, using a combination of asset allocation, fund manager selection and monitoring, stewardship, and public policy.

Nest seeded the UBS fund to the tune of £130m when it launched in 2017. The passive strategy overweights companies contributing to the transition to a low-carbon economy, while underweighting heavy emitters. This tilt means more than £1.2bn will be removed from the biggest carbon emitters and into companies seen to be pioneering green solutions and implementing strong transition plans.

Nest will also channel a greater proportion of its infrastructure capital into green projects. Earlier this year, it launched a tender for unlisted/direct infrastructure equity funds, in three lots: UK-based infrastructure, global infrastructure, and green/clean renewable energy. Successful fund managers are set to be named later in the year. Nest has financed around £100m of renewables projects in Europe through a private debt mandate. 

The new policy also involves divesting from “the most environmentally damaging and financially risky fossil fuels and business activities, like thermal coal, oil sands, and Arctic drilling, with the aim of being fully out of these investments by 2025, unless there's a clear plan by companies to fully phased out these activities by 2030,” explained Diandra Soobiah, Head of Responsible Investment.

To encourage companies to develop climate strategies, Nest will engage with firms, work with other investors – including via stewardship initiative Climate Action 100+ – and support shareholder resolutions regarding disclosure on climate. 

Nest was part of the high-profile collaborative engagements with Total and Barclays this AGM season, publicly backing resolutions asking them to develop robust strategies on both climate risks and climate impacts in their business activities. However, Nest said that if engagement is ineffective – in that the company is progressing insufficiently or too slowly towards alignment – it will consider divestment.

To support these activities, Nest will ask its external managers to work towards aligning the assets they manage for the pension fund with the 1.5°C global warming limit. This will be a requirement for all new mandates, while incumbent managers will have three years to demonstrate meaningful progress against ‘defined benchmarks’.

Mark Fawcett, Nest’s Chief Investment Officer, said: “Just like coronavirus, climate change poses serious risks to both our savers and their investments. It has the potential to cause catastrophic damage and completely disrupt our way of life. No-one wants to save throughout their life to retire into a world devastated by climate change.”