The development of the new ESG index fund range from BlackRock was worked on with Aegon UK and, along with a BlackRock ESG fixed income index fund, will become underlying funds for the Aegon Workplace Default fund, doubling its ESG exposure from 30 per cent to 60 per cent for growth stage investors.
The firm writes that it will transition GBP3 billion of assets into the new funds by including the funds in the flagship Aegon Workplace Default, and a range of other Aegon default fund options.
On completion in Summer 2022, Aegon UK will have transitioned an estimated GBP15 billion into ESG strategies across its range of default funds over the last three years. The move is a key step towards Aegon UK’s target to make its default pension funds carbon net-zero by 2050, and to half carbon emissions between 2019 and 2030, in line with the Paris Agreement.
The new range of six iShares ESG equity index funds track newly launched Morningstar ESG Enhanced indices covering regional and country-specific exposures. Aegon UK worked with BlackRock on the design of these funds, which set a new standard for sustainable index investing in the UK market. The new fund range aims to meet the needs of clients, advisers and pension scheme members for core replacements of standard building blocks that maximise a fund’s ESG credentials, reducing carbon emissions intensity while remaining close to the parent benchmark. The new fund range also addresses the increasing demand for investment strategies that enable a transition to greater sustainability.
The new indices target a 30 per cent reduction in carbon emissions intensity and apply a set of exclusionary screens to limit exposure to controversial companies. The securities are then reweighted to favour those with stronger ESG attributes. The innovative methodology aims to maintain risk characteristics in line with standard market benchmarks and manage emerging ESG tail risks, a critical requirement when building diversified portfolios.
Tim Orton, Aegon’s Managing Director for Investment Solutions, says: “We are excited to have worked with BlackRock on this new range of index-based funds and I’m proud that Aegon UK is setting the standard when it comes to sustainable index investing in a workplace default fund.
“Enhancing the ESG credentials and overall exposure in our Aegon Workplace Default fund, and others, is a significant step for Aegon UK as we move closer to achieving our net-zero commitments for default funds and aligning to the Paris climate accords. The progress we have made in this area also demonstrates our commitment to manage the risks associated with climate change.
“Around 90% of scheme assets are often invested in passive default funds and therefore we have a responsibility to ensure our investment actions are meeting the evolving needs of our customers.”
Sarah Melvin, Head of UK at BlackRock, says: “We are delighted to be working with Aegon UK to create the investment solutions needed to help fulfil their net zero ambitions and investment principles. BlackRock’s purpose to help more and more people experience financial wellbeing is strongly aligned to that of Aegon UK.
“This new range will help pension savers incorporate sustainable considerations into their retirement portfolios as they look to secure their financial futures. We continue to work with clients to help them navigate the energy transition and offer them more choice when seeking to implement their sustainability goals.”