Fund Solutions

This Week’s Fund News: LGIM Broadens Equity Index ESG Range

ESG Investor’s weekly round-up of news about funds designed to meet sustainable investing criteria, including LGIM, M&G, Stewart Investors, Aviva Investors, Ossiam, Janus Henderson and Quintet. 

Following increased demand from investors, Legal & General Investment Management (LGIM) has established a new range of ESG index funds. The four new funds making up the Future World Equity ESG Index cover investments across company shares, bonds and commercial property in developed economies. A fifth addition to the range is expected in due course, which will cover emerging economies. The funds are designed in partnership with German index provider Solactive, incorporating ESG scoring and decarbonisation considerations enabled by LGIM’s research and engagement platform. “By partnering with Solactive and designing custom indices ourselves, we can deploy the intellectual property we have accrued as a provider of index funds,” said Colm O’Brien, LGIM’s Head of Index, EMEA. The new funds join the previously launched Future World ESG UK Index and Future World ESG Developed Index funds. “We have ensured that these strategies are sensibly aligned to a net zero framework, including the introduction of a decarbonisation pathway that ensures the continued reduction in carbon emissions over time. [This allows] investors to seek to benefit from ESG integration and a net zero commitment, while aiming to experience a similar risk return profile to traditional market cap strategies,” O’Brien added.

London-headquartered asset manager M&G has launched a diversity-focused equity strategy and acquired a majority stake in sustainable housebuilder Greencore construction in its £143 billion Prudential With Profits fund. This will help Greencore expand its capacity and impact across the UK. Over the next three to five years, M&G has also committed to investing up to £500 million in sustainable new developments in private and affordable housing through its partnership with Greencore. This is part of M&G’s Catalyst team’s efforts to invest up to £5 billion into innovative privately-owned businesses working towards a more sustainable world. “The built environment is one of the biggest emitters of carbon, both in construction and occupation, but we’ve shown it doesn’t have to be this way. Our homes are sustainable to build and sustainable to live in, which is becoming more important than ever as energy prices continue to spiral,” said Ian Pritchett, Managing Director of Greencore Construction. M&G also expanded its range of sustainable solutions with the launch of an equity strategy investing in companies demonstrating gender and ethnic diversity and offering solutions to drive greater social inclusion and equality. The M&G (Lux) Diversity and Inclusion fund is categorised as Article 9 under SFDR and also targets six of the UN’s Sustainable Development Goals (SDGs), including reduced inequalities, decent work and economic growth, and peace, justice and strong institutions. “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,” said Thembeka Stemela Dagbo, Portfolio Manager of the fund.

Long-term equity investment firm Stewart Investors, has launched the European (ex UK) Sustainability Strategy. It aims to achieve long-term capital growth while contributing to a sustainable future by investing in European companies (excluding the UK) logging strong ESG-related performance. Taking a bottom-up approach, the joint managers of the strategy, Lorna Logan and Rob Harley, will select 30 to 40 companies meeting vital sustainable needs, such as healthcare and clean energy. “Europe is home to some of the highest quality and best sustainability companies in the world. They include world-leading businesses in sectors like bioscience, manufacturing and information technology. We select companies that have great sustainability tailwinds, exceptional management teams, and strong growth prospects, locally and internationally,” said Logan.

Subject to regulatory approval, Aviva Investors, the global asset management arm of Aviva, has achieved an Article 8 classification under the EU’s Sustainable Finance Disclosure Regulation (SFDR) for the majority of its Irish OEIC Liquidity fund range. “This is a key milestone for Aviva Investors and we are pleased that nearly all of our liquidity funds have been classified as A8 early in what is sure to be a transformative process for the asset management industry,” said Anthony Callcott, Global Head of Liquidity Sales at Aviva Investors. The firm’s existing Article 8 funds include its Sustainable Transition range, which invest across climate, natural capital and social themes in credit, equities and real assets.

Ossiam, a quantitative investment manager and affiliate of Natixis Investment Managers, has incorporated ESG into its existing equal weight investment strategy. The Ossiam STOXX Europe 600 Equal Weight NR has been renamed the STOXX Europe 600 ESG Broad Market Equal Weight Index Net Return EUR. Companies that do not comply with the Sustainalytics Global Standards Screening Assessment, are involved in controversial weapons, or have no ESG scores available will not be eligible for investment selection. Ossiam will further apply exclusion filters to companies involved in tobacco production, thermal coal and military contracting. “Equal weighting has been one of the most successful smart beta strategies over the past decade, while at the same time a clear trend has emerged of large equity investors putting ESG at the core of their allocation decisions,” said Paul Lacroix, Head of Structuring at Ossiam. “Investors have also learned the lessons of avoiding concentration, trend following and large cap bias. With those considerations, combination of equal weight and ESG is a natural evolution for this strategy.”

Janus Henderson has announced that eight of its funds are now classified as Article 8 under SFDR, including the Absolute Return, Global Equity and Horizon Strategic Bond funds. These join the firm’s other Article 8 fund, the Horizon Global Technology Leaders fund, and its three Article 9 funds: the Horizon Sustainable Equity, Horizon US Global Sustainable Equity and Horizon Sustainable Future Technologies funds. “Measures like the SFDR allows for increased transparency; the registration of Article 8 funds allows for enhanced disclosure and reporting; allowing investors to measure the contribution of ESG factors to the success of their fund,” said Ignacio de la Maza, Head of EMEA Intermediary and Latin America. “We will continue to assess our fund range and as client demand increases, create and adapt further products to meet the EU SFDR criteria.”

Luxembourg-headquartered Quintet Private Bank has introduced a multi-asset, climate-neutral investment fund. The Essential Portfolio Selection (EPS) Quintet Earth UCITS fund is managed by DWS and aims to combine equal exposure to green bonds and low-carbon equities. Replicating the Bloomberg MSCI Global Green Bond and MSCI World Low Carbon Equity Target indices, carbon emissions associated with the fund’s equities will be offset through the annual purchasing of carbon credits from reforestation projects. Carbon offset activities will be managed in partnership with myclimate, a NGO climate protection agency. “We firmly believe that companies that are better prepared for the impact of climate change on their business – which build resiliency and carefully manage associated risks – are better positioned for growth,” said Quintet Group CEO Jakob Stott.

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