European investors are putting their money where their mouth is lately when it comes to committing assets to climate-adjusted, or “green” investment strategies. And, at the same time, they are learning it is possible to precisely target various emerging green economic factors through using a smart beta index-based approach. This reflects their beliefs that both risk premia factors and climate parameters are important components when assessing long-term risk adjusted returns.
Legal & General Investment Management recently announced the introduction of the Legal & General World Fund, which is based on the FTSE All-World ex CW Climate Balanced Factor Index. In addition to presenting balanced exposure to value, quality, low volatility and size market factors, this new FTSE Russell index applies a range of climate change factors such as carbon efficiency, exposure to fossil fuel and exposure to companies with green revenues. The result is a balanced market factor index with a tilt toward companies likely to benefit from the transition to a low-carbon economy. The new LGIM Fund has been selected by the HSBC Bank UK Pension Scheme as the basis for their £1.85 billion defined contribution (DC) default equity fund.
Based on hypothetical pre-inception performance, the new index rose 15.9% on an average annualized basis between September 2011 and October 31, 2016 relative to a 15.3% annualized rise for its parent the FTSE All World Index.
David Harris, Head of Sustainable Business, London Stock Exchange Group:
“This new index combines a smart beta approach with a focused set of sustainability parameters. It is a new and exciting way for investors to integrate ESG (environmental, social & governance) factors into passive investment strategies, and sets a new standard globally for both corporate and defined contribution pension schemes.”
Mark Zinkula, CEO of Legal & General Investment Management:
“It is crucial that pension funds are able to offer their members appropriate investment products while helping to manage climate risk. Our Future World Fund which combines a multi-factor index approach with climate change considerations is aimed at doing just that.”
 Source: FTSE Russell. Data as of October 31, 2016 and represents hypothetical returns. Past performance is no guarantee of future results. Please see the disclaimer for important legal disclosures.
© 2016 London Stock Exchange Group plc and its applicable group undertakings (the “LSE Group”). The LSE Group includes (1) FTSE International Limited (“FTSE”), (2) Frank Russell Company (“Russell”), (3) FTSE TMX Global Debt Capital Markets Inc. and FTSE TMX Global Debt Capital Markets Limited (together, “FTSE TMX”) and (4) MTSNext Limited (“MTSNext”). All rights reserved.
FTSE Russell® is a trading name of FTSE, Russell, FTSE TMX and MTS Next Limited. “FTSE®”, “Russell®”, “FTSE Russell®” “MTS®”, “FTSE TMX®”, “FTSE4Good®” and “ICB®” and all other trademarks and service marks used herein (whether registered or unregistered) are trade marks and/or service marks owned or licensed by the applicable member of the LSE Group or their respective licensors and are owned, or used under licence, by FTSE, Russell, MTSNext, or FTSE TMX.
All information is provided for information purposes only. Every effort is made to ensure that all information given in this publication is accurate, but no responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for any errors or for any loss from use of this publication or any of the information or data contained herein.
Views expressed by David Harris of FTSE Russell and Mark Zinkula of Legal & General Investment Management are as of November 22nd and subject to change. These views do not necessarily reflect the opinion of FTSE Russell or the LSE Group.
No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the FTSE All-World ex CW Climate Balanced Factor Indexes or the fitness or suitability of the indexes for any particular purpose to which they might be put.
No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing in this IDEA should be taken as constituting financial or investment advice. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any representation regarding the advisability of investing in any asset. A decision to invest in any such asset should not be made in reliance on any information herein. Indexes cannot be invested in directly. Inclusion of an asset in an index is not a recommendation to buy, sell or hold that asset. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.
No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the applicable member of the LSE Group. Use and distribution of the LSE Group index data and the use of their data to create financial products require a licence from FTSE, Russell, FTSE TMX, MTSNext and/or their respective licensors.
Past performance is no guarantee of future results. Charts and graphs are provided for illustrative purposes only. Index returns shown may not represent the results of the actual trading of investable assets.