All World Equity Climate Balanced Multi-Factor Index Sub-Fund

Merseyside Pension Fund invested £400 million in a new All World Equity Climate Balanced Multi-Factor Index Sub-Fund in January 2019. In November 2018, the Fund had announced that it had partnered with FTSE Russell to develop a Smart Sustainability Index, to support the implementation of its Climate Risk Strategy within the Fund’s listed equity portfolio. The fund tracking this index is being managed on behalf of MPF by State Street Global Advisors (SSGA) and comprised one-third of MPF’s passive equities portfolio at inception.
 
The objective of the Fund’s climate strategy is to align its Responsible Investment policy and activities with the goals of the 2015 Paris Agreement. As part of this, the Fund has considered options for capturing both the risks and opportunities arising from climate change while seeking to progressively decarbonise its portfolio starting with the most climate inefficient areas . Merseyside Pension Fund is the fifth largest fund in the Local Government Pension Scheme (LGPS) with £9.8 billion of assets under management. Merseyside’s work on the climate index strategy was recognised at the prestigious IPE Awards in 2019, winning in both Climate Related Risk Management & Factor Investing categories.
 
The index provides broad exposure to the target equity universe (FTSE All-World® Index) and is constructed using FTSE Russell’s innovative and transparent multi-factor weighting methodology. It tilts constituent weights to provide increased but balanced exposures to low volatility, momentum, quality, size and value factors. Alongside this it also incorporates climate change considerations through three parameters; carbon efficiency, fossil fuel reserves and the green revenues of constituents, using FTSE Russell’s Green Revenues data model.
 
Mandate: low carbon equity; to replicate the performance of an index tracking the returns from global equities, inclusive of climate efficiency goals, and using a balanced multi-factor weighting scheme.
Index: the fund tracks the FTSE All-World Climate Balanced Comprehensive Factor Index - https://content.ftserussell.com/sites/default/files/support_document/ftse-all-world-climate-balance-comprehensive-factor-index_v2.pdf
Fund manager: State Street Global Advisers (via SSGA’s regulated life fund for UK pension & institutional investors).
Benchmark: FTSE All-World Equity Index – FTSE parent index used in calculation of the Climate Index & used by Merseyside for performance measurement of the fund.
ESG objectives: to achieve material climate risk efficiencies relative to the parent index & in line with expected transition to a low carbon economy defined by the goals of the Paris Climate Accord; climate efficiencies defined as reduction in exposure to operational CO2E emissions intensity, reduction in fossil fuel reserves intensity and increase in exposure to green revenues.
 
% relative to parent index                              % relative following index policy
at inception                                                    change March 2021

 -45%                     Operational emissions                         -60%
 -77%                     Fossil fuel reserves                             -70%                    
 +97%                    Green revenues                                  +70%         
 

• LGPS Fund/Pool name: Merseyside Pension Fund
• Theme/content identifier: Climate Change
• Contact: Owen Thorne
• Contact email: [email protected]
• More information: https://www.ftserussell.com/research/case-study-making-pensions-more-climate-resilient
• Date created: 08/Apr/2021
• Date updated: 09/Apr/2021