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Drive to go Net Zero with new benchmark

We’re changing the benchmark for the Global Equity Fund

As part of our drive to go Net Zero, from 1 April 2022 we’ll be measuring this fund against a new carbon reducing benchmark.

This change will affect over £5bn of assets under our management, including the Global Equity Fund and the Default Lifestyle Option and should initially reduce emissions intensity* compared to the broad equity market by at least 30%. Each year after it should further decrease carbon intensity by 7%.

The approach will be managed by Legal & General Investment Management (LGIM). We’ll reward companies which can demonstrate they are on the path to lowering greenhouse gas emissions by giving them a higher weighting. The opposite will be true of companies that can’t demonstrate this.

LGIM will do this by adopting the ‘Solactive USS Developed Markets Climate Transition Benchmark’. We’ve developed this with Solactive, a global index provider, and we’ll bar companies that rank poorly on the four UN Sustainable Development Goals (SDGs) relating to environmental sustainability and climate impact.

We’ll overweight companies that are hitting adequate decarbonisation targets while not underweighting in ‘high-impact sectors’. These sectors are ones that are deemed critical to the successful transition to a low-carbon economy, such as manufacturing and construction.

We’ll also avoid investing in companies that fall foul of the UN Global Compact, a voluntary initiative of 10 guiding principles, designed to create sustainable companies and stakeholders.

Simon Pilcher, CEO of USS Investment Management, said: “This is a natural progression for our investment strategy. It follows our ambition to be Net Zero for greenhouse gases by 2050, if not before. We think we’ll be one of the first major UK pension schemes to do this. The move will also inform our thinking on the way we approach investment more widely, both in the defined benefit and defined contribution segments of the scheme.”

Innes McKeand, Head of Strategic Equities of USS Investment Management, added: “Our work with LGIM and Solactive in global equities is an exciting first step on our journey to Net Zero, and we look forward to making further significant progress in the coming year.

“We believe investment in more climate-friendly assets – those positioned to adapt or benefit as the world transitions to a low-carbon economy – offer upside return potential, while lower exposure to companies poorly positioned to adapt to such a world reduces our exposure to downside risk.”

Current benchmark Benchmark from 1 April 2022
92% MSCI World Index 92% Solactive USS Developed Markets Climate Transition Index
8% MSCI Emerging Markets Index 8% MSCI Emerging Market Index

*Greenhouse gases produced as a result of owned or controlled sources, indirect emissions from the generation of purchased electricity, steam, heating or cooling consumed by the reporting company and all other indirect emissions that occur in a company’s value chain.

Published: 24 February 2022

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