Update on the Low Carbon Transition Global Equity Index Fund
You may remember that in 2023 we successfully incorporated the Low Carbon Transition Global Equity Index Fund, managed by Legal & General (L&G), into the Drawdown Lifestyle profile and the other lifestyle profiles.
This is an important fund because:
Who is the Low Carbon Transition Global Equity Index Fund important for?
All members who have chosen this fund from the Selected Investment Range for their Plan savings as well as most members using a lifestyle profile.
After the investment changes described above have been completed the Low Carbon Transition Global Equity Index Fund will make up:
- 100% of the Early Stage Growth fund and 80% of the Growth Investment fund for all three lifestyle profiles.
- 55% of the Pre-Retirement (Flexible Income) Fund and 30% of the At-Retirement (Flexible Income) Fund for the Drawdown Lifestyle profile.
- 45% of the Pre-Retirement (Lump Sum) Fund for the Lump Sum Lifestyle profile.
- 30% of the Pre-Retirement (Annuity) for the Annuity Lifestyle profile.
Let’s take a closer look at the Low Carbon Transition Global Equity Index Fund:
It’s a global equity index fund which is a type of investment fund that follows (or ‘tracks’) the performance of a specific stock market index (see call out box) that spreads its investment across a large number of companies’ shares (‘equities’) from all over the world:
A key feature is that it’s a low carbon transition fund. It gives more weight to investment in companies with lower carbon emissions and greener practices, like clean energy or climate-friendly innovations, and less to those in high-carbon intensity industries such as coal and oil production. It does this by making small adjustments (known as a ‘tilt’) to the mix of investments, while still buying the shares of a broad and diverse range of companies. There are very few companies which are completely excluded. You can read more in the fund factsheet.
An equity index fund is a type of investment fund that:
- Buys shares in companies which are called equities.
- Follows (or "tracks") the financial performance of the companies in a stock market index
What’s a stock market index?
It’s like a scorecard for all the companies in a stock market index. The changes in share price (up or down) for every company within the index is combined into a single number. This makes it much easier to see how the group of equities in an index are doing overall.
You’ll probably have heard about stock market indices like the FTSE 100 which tracks the 100 biggest companies on the London stock exchange and the S&P 500 which tracks 500 big companies in the U.S
What is a low carbon transition?
In broad terms, it’s the shift from an economy that relies heavily on fossil fuels to one that is based on low-emissions together with sustainable energy sources and practices. This process involves reducing greenhouse gas emissions across all sectors, including energy, transport, industry, agriculture, and buildings. The aim is to mitigate climate change and promote environmental sustainability. It is also to mitigate financial risks to members of the Plan that may arise due to the effects of climate change on companies that currently have high emissions and the greatest transition risks.
The low carbon transition is an important investment consideration for pension funds because of the long-term financial risks associated with climate change and the growing shift toward sustainable, low-emission economies. Carbon-intensive industries may face regulatory, market, and reputational challenges, while sectors aligned with decarbonisation have the potential to benefit and create investment opportunities.
We know that the sustainability of the Plan’s investments is important to Plan members and we wanted to update you on some key data about the fund.
What progress has the fund made?
L&G uses the design of the Low Carbon Transition Global Equity Index Fund and engagement to achieve the fund’s aim to reduce carbon emission intensity.
Engagement means the conversations L&G has with policy makers, industry bodies and the management of the companies in which the fund invests. Engaging with companies and using voting rights (ie voting at shareholder meetings) are both used by L&G to achieve change and the funds’ objectives.
