HSBC has become one of the first companies to adopt a multi-factor investment strategy incorporating a climate tilt for its defined contribution (DC) default fund.
The bank announced today it has selected Legal & General Investment Management’s (LGIM) Future World Fund for its £1.85bn DC scheme default fund.
Future World is a multi-factor global equities index fund that incorporates a climate ‘tilt’ to address the investment risks associated with climate change.
The fund tracks the FTSE All-World ex CW Climate Balanced Factor index and targets better long-term risk-adjusted equity returns than a traditional index strategy. It weights constituents according to certain ‘factors’ or attributes, such as value, quality and low volatility, rather than according to their size as with a conventional index.
The ‘climate tilt’ aims to reduce exposure to companies with worse-than-average carbon emissions and fossil fuel assets, and increases exposure to companies that generate revenue from low-carbon opportunities.
LGIM claimed HSBC is one of the first DC schemes to adopt such an approach to its default fund.
HSBC Bank UK Pension Scheme chief investment officer Mark Thompson (pictured) 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.”
LGIM chief executive Mark Zinkula said: “The Future World Fund retains some of the transparency and low-cost characteristics of a conventional index fund, but also provides the opportunity to enhance investment returns by incorporating these factor tilts. Climate change related policies and new technologies will play an important role in shaping our future and the companies that are able to adapt should be well-placed to deliver returns. Pension fund trustees need to ensure they are able to offer better risk-adjusted returns while helping to manage climate change risk.”
FTSE Russell chief executive Mark Makepeace said: “FTSE Russell has a strong and long track record in the development of innovative ESG benchmarking tools and we are delighted that LGIM alongside HSBC have selected FTSE Russell as their index partner for this ground breaking new index and fund.”
The collaboration has the backing of Chancellor of the Exchequer, Philip Hammond.
He said: “Three of Britain’s biggest companies have come together for the launch of this ground-breaking new fund, which is a testament to our status as the world’s leading financial centre. Our ability to continually innovate means we are well positioned to benefit from the opportunities a growing green finance industry presents.”
