L gim ' s f u t u re w orld f u n d
h el p s i n ve s tor s addre s s
t h e lo n g -term f i n a n c ial
ri s k o f c limate c h a n ge
wanted to express a stronger stance, we
evolved our approach to incorporate the
powers of engagement and divestment.
Introducing the
Future World Fund
agreement came into force in November
2016, when 195 countries all ratified
their national commitments towards
the shared goal of keeping the global
average temperature rise well below
2°C from pre-industrial levels. Despite
more recent complications involving
the commitment of the US to the
agreement, the political will for change
is evident on a global scale. Investors
are also increasingly realising the need
to address the long-term financial
risks and opportunities associated with
climate change and the shift away from
traditional energy models.
LGIM has always tried to ensure
that companies are addressing the
transition to a low-carbon economy. Our
mainstream index funds are required to
hold all the companies in a benchmark
index, and this scale gives us influence.
We have for many years focused on using
engagement, both with these companies
as well as policymakers, to drive change
and hold companies to account on the
issue. Last year, for our clients that
In 2016, together with our client HSBC UK
Pension Scheme and the index provider
FTSE Russell, we launched the Future
World Fund in order to help investors
address the long-term financial risk of
climate change, turning our existing
approach into a real-world solution for
our clients.
The fund is an index-based strategy
which incorporates a climate ‘tilt’, giving
investors greater exposure to companies
that generate green revenues and that are
more likely to benefit from the transition
to a low-carbon economy. The tilt reduces
exposure to companies with worse than
average carbon emissions and fossil fuel
assets, whilst maintaining broad sector
exposures. The fund also aims to provide
better risk-adjusted returns over the long
term and uses an alternatively-weighted
index rather than a conventional market-
capitalisation index.
E v o lv i n g o u r a p p r o a c h –
T h e C l i m at e I m pa c t P l e d g e
The Future World Fund takes our
approach to climate change one step
further by incorporating LGIM’s Climate
Impact Pledge. For the first time, we
have gone beyond solely engaging with
companies and we now have a vehicle to
hold them to account on climate issues.
Those that fail to demonstrate adequate
strategy, governance and transparency
regarding climate change risk being
excluded from the fund. Crucially, we have
also committed to voting against the chair
of the board within all of our other index-
tracking funds, ensuring we use one voice
across all of our global holdings.
The time to act is
n o w – a c l e a r m e ss a g e
t o c o m pa n i e s
The combined approach of ranking,
publicising, voting and divestment can
send a powerful message to all companies
that their investors are serious about
tackling climate change. Over time, the
intention is to improve the standards and
practices in these companies to make
them more resilient to policy changes,
more successful in providing low-carbon
solutions and, ultimately, more
prosperous as companies. In the long
term, our clients who hold stakes in these
companies should benefit from their
financial success.
We hope to dispel the misconception
that ESG-focused strategies must
compromise returns in order to achieve
their broader goals. As investors continue
to re-evaluate the suitability of their
investments in the context of their
broader values and beliefs, LGIM is
determined to play a key role in helping
our clients invest for the future they want
to live in. ■
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