USS adds climate ’tilt’ to £5bn portfolio

USS Investment Management has introduced a climate "tilt" to the portfolio of companies that it has invested in, rewarding organisations that can demonstrate ambitious levels of decarbonisation and those in alignment with the Sustainable Development Goals (SDGs).

USS adds climate ’tilt’ to £5bn portfolio

The Benchmark aims to ensure that USS’s portfolio is weighted more towards companies that are performing against ambitious decarbonisation targets 

The Universities Superannuation Scheme’s (USS) investment arm has today (24 January) announced plans to introduce a climate weighting to its Global Developed Markets Equity component of the Defined Benefit and Defined Contribution funds. This climate “tilt” will impact more than £5bn of assets under management.

The USS’s investment arm will introduce a climate “tilt” to a portion of the Global Developed Markets Equity component of the Defined Benefit and Defined Contribution funds held by the scheme. This change will affect over £5bn of assets under management.

The new approach will see USS adopt the Solactive USS Developed Markets Climate Transition Benchmark”, developed in conjunction by USS and Solactive, a global index provider. The benchmark effectively bars companies that USS deems to be ranking poorly against environmental aspects of the SDGs. The Benchmark also aims to ensure that USS’s portfolio is weighted more towards companies that are performing against ambitious decarbonisation targets but must not be “underweight in high-impact sectors”.

The new approach will also aim to avoid companies that are in direct contrast to the UN Global Compact guiding principles.

The benchmark will build towards USS’s overall goal of reaching net-zero emissions by 2050 and is set to initially reduce emissions compared to the broad equity market by at least 30%. USS also claims that its carbon intensity will be reduced by 7% annually thereafter across all three Scopes.

USS Investment Management’s chief executive Simon Pilcher said: “Today’s news is a natural progression to our investment strategy following our announced ambition to be net-zero for greenhouse gases by 2050 if not before.

“We think we will be one of the first major UK pension schemes to do this and is a significant step towards achieving our net-zero ambition. The move will also inform our thinking on the way we approach investment more widely in both the Defined Benefit and Defined Contribution segments of the Scheme.”

The approach will be managed by Legal & General Investment Management.

M&G’s approach

In related news, investor M&G has announced it is expanding its range of sustainability-orientated investment schemes, by launching an equity strategy investing in companies demonstrating gender and ethnic diversity and those offering solutions driving greater social inclusion and equality.

M&G will deliver a portfolio of 30-40 stocks aiming to provide a higher total return than that of the MSCI ACWI over any five-year period. At least 15% of this fund will be invested in companies that empower social inclusions, with the resto focused on sustainable companies demonstrating gender and ethnic diversity at work.

M&G’s fund manager Thembeka Stemela Dagbo said: “Social inclusion and diversity are not only the right thing to do, they also make good economic sense. Left unaddressed, the exclusion of disadvantaged groups and the lack of diversity can be costly and result in lost GDP and human capital wealth, whereas pioneers of the diversity and inclusion initiatives are being increasingly recognised for their financial outperformance.

“Indeed, companies with top quartile levels of gender diversity are 25% more likely to outperform, and 36% more likely for ethnically diverse ones. This Fund provides our customers with the opportunity to capitalize on these trends and address diversity imbalances while putting their savings to work with a purpose.”

Last year, a group of investors with £8.5trn of assets under management called on G7 nations to introduce new climate disclosure and action mandates for big businesses – and to provide more detail on how their long-term climate goals will be delivered.

The call to action is being made by the UK-based trade body the Investment Association (IA). IA members include Allianz Global Investors, M&G Investments, Jupiter Asset Managements, Aviva Investors, Schroders and Legal & General.

Matt Mace

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