Aegon UK is introducing a 30 per cent ESG portion to its workplace default funds as part of its net zero carbon transition strategy.
The provider is partnering with HSBC Global Asset Management to embed ESG criteria across its Aegon Retirement Choices (ARC) in-house workplace default funds.
The initial 30 per cent ESG allocation is an early step in its transition to net zero carbon emissions by 2050. By the end of this process, Aegon UK will have around £1.7 billion invested in the new fund.
Earlier this month, Aegon UK announced its intention to achieve net zero carbon emissions across its default fund ranges by 2050, and to explore the practicability of achieving the milestone of halving emissions by 2030.
From January, key ARC workplace default funds will start to invest in the newly launched HSBC Developed World Sustainable Equity Index fund, reaching a total of around 30 per cent of assets for members in the growth stage within six months. Aegon UK is the first investor in the fund, which is a low-cost solution designed to track the performance of the FTSE Developed ESG Low Carbon Select Index before charges.
Those nearing retirement and invested in the Aegon Workplace Default Retirement fund will have 15 per cent invested in the ESG component on completion of the process.
The new HSBC fund targets three areas of improvement with the investments it makes – a 20 per cent uplift in ESG score, as measured by the FTSE Russell ESG Ratings model, as well as a 50 per cent carbon emissions and fossil fuel reserves intensity reduction, relative to the parent index. It aims to deliver on these targets without adding risk to the portfolio by keeping tracking error low.
The fund excludes companies that operate in specific sectors, including controversial weapons and tobacco production, or those that generate significant levels of revenue from activities such as thermal coal, gambling and adult entertainment. It also incorporates a custom exclusion list based on company performance against the 10 principles of the UN Global Compact.
The changes will apply to Aegon Workplace Default Growth Tracker (Flexible, Annuity and Cash Target) – growth funds, Equity & Bond Lifestyle – growth fund, GPP Default – growth fund and Stakeholder Default – growth fund.
This change builds on last year’s addition of ESG to its LifePath default funds for Master Trust and TargetPlan customers and now means that both Aegon’s workplace propositions include a significant ESG allocation in their respective default funds.
Aegon managing director for investment solutions Tim Orton says: “We’ve become increasingly aware of our customers’ desire to invest not just for their own future prosperity, but to also make an impact with it, and this is something that we also feel passionate about. HSBC Global Asset Management has strong credentials in sustainable investing, which was a key consideration for us when embarking on such an ambitious programme of change across our default range. We are pleased to be partnering with HSBC Global Asset Management in this initiative as we continue to improve our range of sustainable and ethical solutions to meet our customers’ needs.”
HSBC Global Asset Management UK and International CEO Stuart White says: “The transition to a lower-carbon economy is underway and our priority is to develop solutions that will enable our clients to participate in this transition. Our partnership with Aegon UK is an important milestone in achieving this goal and testament to our expertise in responsible investing.
“As the latest addition to our sustainable fund range, the HSBC Developed World Sustainable Equity Index Fund is ambitious in its approach as it focuses on not just one but three areas of improvement, allowing for the underweighting of less desirable stocks without excluding them entirely. This aligns with our approach of supporting companies as they transition to become more sustainable.”