Aegon launches HSBC ESG fund into ARC defaults

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For intermediaries and employers only

Earlier this month, I announced Aegon UK’s commitment to achieving net zero carbon emissions across our pension default fund strategies by 2050.

As an early step towards achieving this target, I’m delighted to announce that Aegon UK has partnered with HSBC Global Asset Management (HSBC) to embed Environmental, Social and Governance (ESG) exposures across our workplace default range for ARC. This move leverages HSBC’s impressive heritage in sustainable investing.

New HSBC ESG fund

From January, the Aegon Workplace Default fund will start to invest in the newly launched HSBC Developed World Sustainable Equity Index fund, targeting 30% exposure by the middle of 2021. Those nearing retirement will have 15% invested in the ESG component due to the lower equity (shares) weightings of the fund at that stage. This fund will also be added to other key default options:

  • Growth Tracker (Flexible, Annuity and Cash Target) funds
  • Equity & Bond Lifestyle fund
  • GPP Default fund
  • Investment Pathways solutions 1 and 3

These changes are expected to improve ESG scores and reduce carbon emissions intensity and fossil fuel reserves intensity, and won’t impact the funds’ investment objectives, benchmark or charges.

The HSBC Developed World Sustainable Equity Index fund is a low-cost solution designed to track the performance of the FTSE Developed ESG Low Carbon Select Index before charges. By the end of this process, Aegon will have invested around £1.7 billion in the new fund.

The fund targets three areas of improvement compared to the parent index:

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To do this, the fund uses a tilting approach to overweight or underweight stocks according to these three factors, whilst being conscious of the need to manage risk and keep tracking error low. For this reason, the country and sector weightings are not dramatically different from the parent index, just the stocks within each sector.

In addition, the fund excludes companies that operate in specific sectors (e.g. controversial weapons and tobacco production) or those that generate significant levels of revenue from activities such as thermal coal, gambling and adult entertainment. It also incorporates a custom exclusion list based on company performance against the 10 principles of the UN Global Compact.

HSBC has strong tracking and ESG credentials

We’re excited to be working with HSBC for a number of reasons, but primarily due to its strong passive management (index tracking) capabilities and group commitment to ESG. HSBC won Passive Manager of the Year at The Asset Management Awards 2020 and its banking arm won Euromoney 2020 Worlds Best Bank for Sustainable Finance. This expertise, along with its scale, will allow us to accelerate our plans to fully embed ESG across our ARC workplace defaults.

Other key improvements

The ARC default funds will be managed by Aegon’s Portfolio Management Team, headed by Richard Whitehall, which will define the asset mix of the funds. The team are making some changes at the same time as the ESG exposure is added, reducing UK bias in favour of a more global approach and introducing other asset classes, such as emerging markets equities and global bonds, to improve diversification.

The changes we’re making this year closely align to those we’re making for LifePath investors and to Aegon UK’s ESG ambitions. 77% of our customers believe climate change is important for future investing1. With over 95% of defined contribution scheme members invested in their scheme default2, I believe it’s right to focus efforts on ensuring that default funds, which contain the majority of UK pension scheme members’ savings, are invested sustainably.

 

The value of a member’s pension plan can fall as well as rise and isn’t guaranteed. They may get back less than the amount invested. There’s no guarantee the funds will meet their objectives.

1 Research was carried out with 1375 members of Aegon’s feedback community in December 2020.

2 The Pensions Regulator. DC trust: scheme return data 2019 - 2020.