BlackRock and Scottish Widows have joined force to design the Climate Transition World Equity fund, a new portfolio dedicated to helping the transition to a low carbon economy.
The BlackRock managed fund, is part of an initiative by the two firms, which has already received £2bn from Scottish Widows' pension portfolios. This makes Scottish Widows the inaugural investor in BlackRock's authorised contractual scheme (ACS) Climate Transition World Equity Fund.
The initial investment reflects growing investor demand for asset allocations that incorporate an assessment of climate change-related risks and opportunities, the company said.
Offering customers more sustainable investment choices, and challenging companies in which we invest to behave more sustainably and responsibly, is a central part of our strategy," Scottish Widows head of pension investments Maria Nazarova-Doyle
The fund will use a data-driven investment approach to measure a company's exposure and management to low-carbon transition risks and opportunities.
Companies will be underweighted where they are less equipped to prepare for the transition, while those best equipped will see an increased investment.
The fund is diversified across sectors, regions, and business maturities, recognising that a transition to a low-carbon economy would impact widely.
Scottish Widows head of pension investments Maria Nazarova-Doyle, pictured above, said: "Offering customers more sustainable investment choices, and challenging companies in which we invest to behave more sustainably and responsibly, is a central part of our strategy.
"Our work with BlackRock to design this new fund, together with our significant investment, will help to engender positive change in the industry; incorporating ESG risks into a portfolio can have a meaningful impact on financial performance."
Earlier this year Scottish Widows launched a responsible investment team, headed up by Nazarova-Doyle, in order to "meet customers' evolving values and beliefs", with it then debuting a responsible investment framework the following month.
Sarah Melvin, head of UK at BlackRock, said: "The global shift to zero and low carbon energy sources is underway and is accelerating.
"The BlackRock Climate Transition World Equity fund expands our range of sustainable investment solutions, adopting an innovative data driven research approach to sustainability and climate change, and aims to deliver long-term value to clients based on companies' readiness to transition to a low carbon economy."
BlackRock said it would exclude investments in some controversial areas, such as nuclear weapons, and disinvest from companies where civil firearms, tar sands, and thermal coal comprise more than five per cent of revenues.
Companies will be assessed via a systematic process to deliver a scoring methodology, with the portfolio then managed through an optimised process off the MSCI World Index parent benchmark. BlackRock said the approach allowed both the management of risk contracts and cost effectiveness for investors.
The fund uses a five-pillar framework based on carbon risks and opportunities, looking at energy production, clean technology, energy management, water management, and waste management. Each company will be given a single climate transition assessment, translated into a score, based on these pillars.
This article first appeared in International Investment's sister title Professional Pensions