Legal & General Investment Management launch carbon efficient Index Tracker Fund.
13 May 2011
Legal & General Investment Management (LGIM), a leading provider of investment services and products, with £356 billion funds under management as at end March 2011, and Trucost, the environmental data company, have launched a carbon efficient tracker fund.
LGIM UK Equity Carbon Optimised Index Fund is designed for pensions investors concerned about carbon risk, which in turn is a good proxy for energy risk. The fund aims to achieve returns close to the FTSE All-Share index while reducing exposure to financial risk from the transition to a low carbon economy and rising energy costs. The fund is sector neutral weighted compared to the FTSE All-Share but is around 20% less carbon intensive*.
The Fund has been developed by Legal & General Investment Management using a custom index created by FTSE Group based on carbon data provided by Trucost.
Neil McIndoe, Director of Partnerships at Trucost comments, “Rising energy prices and the recent news that Drax slipped by 4.3% in response to the Budget measure to set a price floor for carbon credits, makes it increasingly important to enable investors to manage this financial risk.”
Mike Craston, Managing Director, Institutional Business, LGIM said, “LGIM has launched this fund in response to client demand for a carbon efficient tracker fund. We have worked closely with the BT Pension Scheme Management, the executive arm of the BT Pension Scheme (BTPS) to develop a fund which meets the requirements of the Pension Scheme. The fund will direct investment towards carbon-efficient companies and reduce fund exposure to rising carbon costs. Passive investors in particular should be drawn to the Index due to its lower carbon risk combined with a fund designed to deliver very low tracking error, compared to its benchmark.
“Although this fund has been developed for BTPS we are confident that the concerns that caused them to ask us to develop this fund will be shared by other pensions investors who will also invest in this fund to reduce carbon exposure risk.”
Helene Winch, Director, Head of Policy, BT Pension Scheme Management Ltd said “As part of our ongoing analysis of the potential impacts of climate risk on our portfolio of assets, we have been actively exploring ways to efficiently allocate capital to investments that could outperform in times of higher carbon prices, particularly as a result of policy moves towards a low carbon economy. Alongside our partners of LGIM, Trucost and FTSE, the BT Pension Scheme is pleased to invest in this attractive, institutional-focused product.”
BTPS has indicated they will invest £100m into the fund.
David Harris, Director of Responsible Investment at FTSE said “an increasing number of global institutional investors are integrating climate change considerations into their investments. The index that has been created specifically for the LGIM Carbon Optimised Index Fund demonstrates how FTSE is developing indices and custom solutions to support the integration of climate change into investments.”
The pioneering collaboration draws on LGIM’s fund management expertise, Trucost’s expertise in the calculation of corporate environmental impacts, and FTSE’s expertise in responsible investment and experience in developing market leading indices on a standard and customised basis. Trucost has been researching, standardising and validating corporate carbon emissions for over 10 years, providing LGIM with the all important ability to back-test the Fund’s performance. These tests have shown that the emissions attributable to the carbon efficient index’s components have been consistently 20% lower than the FTSE All-Share while the financial performance has closely tracked the FTSE All-Share. This gives investors the opportunity to reduce exposure to rising carbon costs in the future without sacrificing returns in the meantime.
*Carbon Intensity means tonnes of carbon emitted per unit of revenue.
Notes to editors
Trucost was established in 2000, to help companies, investors and governments understand and quantify the environmental impacts of business activities.
Over the past 10 years Trucost has collected, researched and validated environmental data from organizations across the world.
The result is the world’s most comprehensive data on corporate environmental impacts, covering Greenhouse Gases (GHGs), water, waste, metals, chemicals and natural resource use. This enables our clients to:
- Adopt the most efficient approach to measuring GHG emissions and wider environmental impacts across organisations, supply chains and investment portfolios;
- Identify and prioritise the key areas for reducing environmental impacts;
- Validate source data, and fill gaps in data which are not currently being tracked or reported on;
- Compare environmental performance against peers, sectors and investment benchmarks;
- Create investment products that take account of environmental costs.
About the BT Pension Scheme ("BTPS")
The BTPS is the UK's largest private sector pension fund with over 340,000 members and £35 billion in assets (as of 30 September 2010) and is an active member of the PRI (Principles for Responsible Investment) and the IIGCC (Institutional Investors Group on Climate Change). BT Pension Scheme Management (BTPSM) Limited acts as the executive arm for the BTPS.
About FTSE Group
FTSE Group is the world leader in the creation and management of index solutions. Investors worldwide trust our indices to help them analyse investments, measure performance, and hedge portfolios, and to create derivatives, funds, and structured products. FTSE is a pioneer in responsible investment, having been a founding signatory of the United Nations-backed Principles on Responsible Investment (PRI) and has developed and calculated responsible investment indices for the last decade.
For more information please contact:
PR Manager Investments
t: +44 (0) 2031 242096