Legal & General Investment Management (LGIM) has launched a new fund that addresses investment risks associated with climate change.

The Future World Fund, a multi-factor global equities index fund, incorporates a 'climate tilt' that reduces exposure to companies with poor environmental credentials.

The Fund has been chosen by HSBC Bank UK Pension Scheme, one of the largest corporate pension funds in the UK.

HSBC chose the fund for its equity default option, worth £1.85billion, in its Defined Contribution (DC) scheme.

It is one of the first schemes to adopt a multi-factor investment strategy incorporating a degree of climate change protection as its default fund.

Mark Thompson, chief investment officer at the HSBC pension scheme, says the fund represents a 'new normal' for the industry.

He 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 Fund tracks a climate change index, the FTSE All-World ex CW Climate Balanced Factor Index, and targets better long-term risk-adjusted equity returns.

Its 'climate tilt' reduces 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 chief executive Mark Zinkula, said the Future World Fund retains the transparency and low-cost characteristics of a conventional index fund, but adds enhanced investment returns.

He said: "Climate change-related policies and new technologies will play an important role in shaping our future, and the companies able to adapt should be well-placed to deliver returns."

"Pension fund trustees need to make sure they are able to offer better risk-adjusted returns while helping manage climate change risk."

The Fund has also garnered support from the Chancellor of the Exchequer, Philip Hammond: "This ground-breaking new fund is a testament to our status as the world's leading financial centre."

The UK's ability to continually innovate, means it is well-positioned to benefit from the opportunities a growing green finance industry presents, he added.

Climate change has risen to the top of political, regulatory, and business agendas recently, following the landmark Paris Agreement from the UN Climate Change Conference in 2015.

The agreement, which came into force on 4 November, is the first-ever universal, legally binding global climate deal.

First published 10.11.2016

Lindsay.sharman@wilmingtonplc.com