Nest, the largest workplace pension scheme in the UK by members announced today the launch of a new climate aware strategy investing in emerging markets. Nest expects to allocate approximately £450 million to the new strategy, nearly doubling its EM allocation to an estimated £930m by February 2021 (from 3.6 to 6 per cent of Nest’s total portfolio). Nest announced that it has selected investment management firm Northern Trust Asset Management to manage the new strategy.

With the new allocation announced today, Nest’s investments in dedicated climate-aware strategies will reach nearly £8 billion, representing half (51%) of the scheme’s overall portfolio as of February 2021. In July 2020, Nest announced a new climate change policy, including a commitment to achieve net zero carbon across its investments by 2050. Since the July announcement, Nest has significantly increased its allocations to climate aware strategies.

Diandra Soobiah, Nest’s Head of Responsible Investment, said:

“Over the next 10-20 years countries like China and India are expected to see huge increases in urbanisation. Many emerging economies are also thinking hard about how to harness green technology to fuel their growth and leapfrog the dirtier industrialisation trends of the past. This presents opportunities for investors.

“We’re therefore delighted to announce our new strategy, formulated closely with Northern Trust Asset Management, to expand our investment in emerging markets while targeting green opportunities and managing climate-related risks.

“It’s crucial that investors in such a strategy are active stewards for companies in emerging markets. We’ll encourage companies to prepare for the low carbon transition to ensure they remain attractive investments for our members.”

According to Nest, the new strategy will track a customised index produced in collaboration with Northern Trust Asset Management, which addresses a range of ESG issues. The strategy includes an ‘energy tilt,’ weighting investment in companies based on a score calculated on key components, including energy efficiency, alternative energy, and green building. This methodology will underweight investment in companies with large oil or gas reserves and those with a high carbon intensity, while increasing investment in clean technology and renewable energy opportunities.

Marie Dzanis, Head of Northern Trust Asset Management, EMEA, said:

“We at Northern Trust Asset Management believe this will be a decade of sustainable investing. We are delighted to work with Nest, who dedicate nearly half their portfolio to climate-aware strategies, and celebrate that they are at the forefront of innovation. Our work with Nest aligns to our philosophy and dedication to furthering investor access to climate-aware strategies.

“Through our participation in initiatives, such as a Climate Action 100+ signatory and being a founding member of One Planet Sovereign Wealth Funds, we are committed to continuing our engagement in the industry and understand the importance of meeting investors wherever they reside on their ESG journey to help them build more resilient portfolios as we transition to a low carbon economy.”