Three quarters of default funds already have or plan to introduce within 12 months some sort of filtering, screening or tilting to their investment strategy to reflect environmental, social and governance (ESG) investing, according to research from Corporate Adviser.
There has been a marked increase in the number of master trusts and GPPs adopting ESG and socially responsible investment strategies in the past 12 months, according to Corporate Adviser’s 2020 ESG and Responsible Investing in DC Pensions report.
Of 19 default funds providing data only Aegon ARC (GPP), Cheviot Trust, Crystal Trust, LGIM MAF and Standard Life Active Plus III have no plans to introduce strategies that structure their default in a way that tilts, filters or screens to reflect ESG considerations.
L&G’s Future World Fund however does adopt a 100 per cent ESG filtering/screening and 65 per cent tilting strategy.
While Standard Life does not deploy screening or tilting, 86 per cent of its default proposition is invested in funds actively managed by Aberdeen Standard Life, which now integrates ESG research into its investment decisions.
The report provides an in-depth look at how many of the largest master trusts and GPPs are currently incorporating ESG strategies within their default propositions, and which plan to do so in future. It also includes details of ESG/responsible investment alternatives offered by the 19 pension providers covered in the report.
A year ago just five master trusts had a default proposition that invested in funds that used ESG screens or tilts. The number of master trusts that offer allocation – through tilts or filters – to ESG funds within their default proposition has more than doubled in the space of 12 months
In the master trust sector Atlas, Aviva, Bluesky, Ensign, LifeSight, Mercer and Nest have significant ESG-led tilting and/or filtering strategies, the research shows. Of the master trusts and GPPs that supplied data, Bluesky, Nest and LifeSight have the biggest portion of their default propositions invested in funds that deploy screened or tilted ESG strategies: 100 per cent of Bluesky’s assets, 70 per cent of Nest’s and 56 per cent of LifeSight’s are now allocated to such funds.
The majority of other trusts using these strategies have between a 15 and 30 per cent exposure.
Screening is the most widely used strategy when it comes to the more focused socially responsible, or ESG funds. However many asset managers now use tilts as an effective way to reduce the carbon footprint of a portfolio, relative to a benchmark or index. Cluster bombs, armaments and thermal coal continue to be the factors that are most widely excluded from responsible investment funds.
