Nest, the workplace pension scheme representing a quarter of the UK workforce, is to reduce its carbon footprint while increasing investment in emerging market equities.
By February 2021, the pension scheme plans to nearly double its investment in emerging markets, from around £480m as of September 2020 to an estimated £930m by February 2021 (from 3.6 to 6% of Nest’s total portfolio). At the same time, the carbon footprint of this growth will need to be managed if Nest is to meet its net-zero ambitions.
The new strategy, which addresses a range of environmental, social and governance risks, will track a customised index produced in collaboration with Northern Trust Asset Management. It will tilt investment in companies based on a score calculated on three key components: energy efficiency, alternative energy, and green building.
This ‘energy tilt’ in the fund means Nest will reduce investment in companies with large oil or gas reserves and those with a high carbon intensity, while increasing investment in clean technology and renewable energy opportunities. Nest will continue to review and update the methodology behind this fund, evolving the criteria over time so that it continues to move closer to delivering the goals of the Paris Agreement.
This move will take Nest’s investments in dedicated climate-aware strategies to nearly £8 billion, representing half (51%) of the scheme’s overall portfolio as of February 2021.