Wespath commits $750m to ‘transition ready’ firms in BlackRock collaboration

New “enhanced” passive approach claims to offer 50% cut in emissions and 40% leap in low-carbon exposure

Wespath Benefits and Investments, which manages $23bn for the United Methodist Church in the US, will invest $750m in “transition ready” companies through a new “enhanced” passive investment strategy created in partnership with BlackRock.
The Low-Carbon Economy Transition Ready Investment Strategy, which invests in domestic US and international equities, seeks to direct capital to companies most prepared for the global transition to a low-carbon economy. 
David Zellner, Wespath’s Chief Investment Officer, told RI that its new investment approach uses data from “multiple external sources”, but did not disclose which providers it used, as well as research from BlackRock. The strategy uses this data to create a ‘Transition Ready Signal’ which indicates a company’s “future preparedness”. This is the basis upon which companies are over- or under-weighted in the portfolio.
BlackRock, which manages assets of $6.3trn, plans to offer the transition strategy to its institutional clients, according to the press release.
Companies are evaluated relative to their industry across five ‘pillars’, including: energy production, carbon-efficient technology, energy management, water management and waste management. The Sustainability Accounting Standards Board (SASB) sector-specific standards and BlackRock’s own analysis are used in the strategy to determine what is financially relevant for each industry.The strategy has industry-level constraints, to ensure diversification is maintained, but does exclude ‘pureplay’ thermal coal companies.
Zellner told RI that Wespath, which claims the approach leads to a 50% reduction in carbon intensity and a 40% increase in exposure to carbon efficient technologies compared with benchmarks, will apply the strategy to two of its passive strategies that use “standard industry, non-ESG specific benchmarks”.
“As a fiduciary, we believe companies positioned to benefit from the transition to a low-carbon economy are attractive long-term investments,” said Zellner. “Capturing a return premium associated with these risks and opportunities required a new and innovative approach.”
“We start with the premise that the future will look different than the past across a number of sustainability-related issues,” added Brian Deese, Global Head of BlackRock Sustainable Investing and former climate advisor to former US President Barack Obama. “The transition to the low-carbon economy is one of these issues that presents a potential for significant disruption across the energy, transportation, building and consumption sectors. What we have designed together is a new approach to low-carbon investing that seeks to deliver enhanced financial performance and improved environmental characteristics in our clients’ portfolios, through a risk-managed approach.”
Further collaborations to develop “transition ready analytics” and additional strategies are planned between Wespath and BlackRock.