Lifesight, Willis Towers Watson’s DC master trust will allocate around half of its equities into environmental, social and governance investment strategies.
It is understood that this is the first master trust to make ESG a major part of the default fund. Willis says this move is designed to improve outcomes for scheme members, through increasing diversification and producing better risk-adjusted return scenarios.
The ESG allocation will be split between two strategies. The first is a passive approach, via the MCSI Adaptive Capped ESG Universal Index, which invests in both developed and emerging markets.
Willis Towers Watson has worked with MSCI to develop this index, which has a greater weighting towards companies with strong and improving ESG attributes. The company says it offers a highly diversified portfolio that spreads capital more evenly between stocks, when compared to a traditional index strategy.
The Robeco Global Sustainable Multi-Factor Equities Index is an active strategy. It will invest in stocks based on a number of factors, such as valuation, quality, momentum and low volatility. It considers the ESG attributes of each stock and the over all portfolio as key parts of the investment process.
Lifesight head of proposition development David Bird says: “This move has been made to improve outcomes for scheme members.
“We’ve been working to develop the most appropriate vehicles to take this strategy forward and deliver what we consider will be the most optimal outcomes in terms of performance, risk management and value for members.”
He says the construction of these two vehicles has enabled the companies to make this substantial change to the default fund’s asset allocation.
Bird adds: “Adding ESG’s risk profile to our investment mix supports the growing member and employer appetite for sustainable investment, whilst maintaining the returns they need for retirement.”
He points out that ESG factors have increasingly been on the investment agenda for DC trustees, who now need to think about where it fits into their scheme’s glidepath, assessing member demand and developing the right strategies to deliver for them.