Legal & General Investment Management (LGIM) has announced the launch of a new range of ESG index funds, in response to increasing demand from investors for low-cost Environmental, Social and Governance focused products.
The four new Future World Equity ESG Index Funds (‘the Funds’), offer a broad selection of regional exposures, across developed economies. A fifth addition to the range is also expected in due course offering investors further exposure to emerging economies. Designed in partnership with Solactive, the Funds track ESG indices which incorporate a carbon emissions reduction trajectory and a comprehensive approach to sustainable investing, exclusions, ESG scoring and decarbonisation considerations enabled by LGIM’s global research and engagement platform.
The new equity range is aimed at clients who want to express a conviction on responsible investing themes across a broad range of equity strategies. The wider Future World range combines a mixture of index tracker funds with investments across company shares, bonds and commercial property. Using these funds as building blocks in portfolios can potentially help increase cost effectiveness as well as aim to mitigate future risk.
James Crossley, Head of UK Distribution at LGIM, comments: “The demand for low-cost ESG index funds will continue to grow as investors become increasingly concerned about the real impact of climate change. We believe that sustainable investing shouldn’t have to cost the earth and our Future World Equity ESG Index Funds range is priced at a highly competitive level. With 35 years of experience tracking indices and nearly 50 years of engagement with companies, peers and policy makers, we believe LGIM is well positioned to deliver index investment strategies that bring together our scale and responsible investing credentials.”
Managed by LGIM’s highly experienced index teams, the Funds aim to track their respective LGIM-designed benchmark indices which explicitly incorporate ESG considerations into the investment strategy. A shared ESG methodology across all the strategies means that the Funds can be used flexibly, either for clients looking for a specific targeted exposure or blended together to construct a low-cost tailored equity ESG solution. The development will also strengthen LGIM’s Future World Multi-Index range, with clients now able to access an even more diverse and sustainable range of seven equity building blocks in their multi-asset portfolios.
In order to improve transparency and help clients to assess how well these funds are tracking their index, in a clear and simple way, unique ESG enhancements are incorporated into the index construction.
Colm O’Brien, Head of Index, EMEA at LGIM, commented: “By partnering with Solactive and designing custom indices ourselves, we can deploy the intellectual property we have accrued as a leading provider of index funds. These funds track indices that apply a unique LGIM-enhanced ESG methodology. On top of sector exclusions, the index applies tilts based on proprietary LGIM calculated ESG scores, that are linked to our stewardship policies & engagement activities, across important Environmental, Social, & Governance topics. Additionally, we have ensured that these strategies are sensibly aligned to a Net Zero framework, including the introduction of a decarbonisation pathway that ensures the continued reduction in carbon emissions over time. This new exciting range of equity funds allows investors to seek to benefit from ESG integration & a net zero commitment while aiming to experience a similar risk return profile to traditional market cap strategies.”
The new funds complement the two existing funds in the LGIM Future World index range – the Future World ESG UK Index Fund and the Future World ESG Developed Index Fund. The OCF for both of the existing funds, which are already used as the building blocks for the Future World Multi Index range of funds, will be reduced to 0.15% (from 0.22%) and 0.20% (from 0.25%) respectively, with effect from 1 February 2022.
With nearly 50 years of engagement with companies, peers ad policy makers, the funds also benefit from LGIM’s industry leading Investment Stewardship team, who exercise voting rights globally across both index and active funds, holding underlying companies to account on the issues that matter to our clients. These issues range from climate change, to board independence and diversity.
LGIM’s rules-based approach to scoring companies from an environmental, social and governance (ESG) perspective, is unique and proprietary and has been developed in alignment with our market-leading engagement team. Scores explicitly reflect LGIM’s Investment Stewardship views, where the appropriate data exists to do so. Through a transparent scoring methodology, LGIM believes it can drive fundamental change in the market.
LGIM also believes that integrating ESG considerations into investment processes can help mitigate risk and has the potential to improve long-term financial outcomes. Indeed, companies with strong governance are better positioned to withstand and even benefit from shifts in the market environment.
As of June 2021, LGIM’s index equity team has £419bn in AUM across segregated, mutual fund and ETFs.