Responsible investment doubling for Aegon Workplace Default

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We’re increasing the proportion invested in funds with a sustainable and responsible focus in our main Workplace Solutions pension scheme default fund, the Aegon Workplace Default fund, by investing in new BlackRock funds which Aegon helped to design. This change will also enhance a range of other default fund options.

Default funds are where workplace pension scheme members are automatically invested if they don’t select an alternative fund.

The six new funds are equity funds (meaning they invest in stocks and shares) and they take into account a broad range of environmental, social and governance factors (ESG) when determining which companies they should invest in, and how much they should invest in them. You can find out more about ESG investing on our responsible investing hub.

Aegon worked with BlackRock on the development of these innovative ESG equity funds. This new range, along with a BlackRock ESG UK corporate bond fund, will now become core additions to the Aegon Workplace Default fund, and a number of other Aegon default investment options. As a result, Aegon will initially invest £3 billion in these ESG funds. This transition will happen in phases and we expect the first phase to complete by Summer 2022.

The Aegon Workplace Default fund is the in-house default fund for our Workplace Solutions pension schemes.

Proportion in responsible investments increasing significantly

The changes build on the Aegon Workplace Default fund’s existing 30% ESG allocation provided by the HSBC Developed World Sustainable Equity Index fund. They mean that the proportion of responsible investments held in the strategy for growth stage investors (those who have six years or more until retirement) will double from 30% to 60% over the next few months and will increase from 15% to 40% for those in retirement.

We don’t expect any impact on charges, risk levels or performance expectations, and the overall asset allocation (mix of investments) for all the impacted default funds isn’t changing.

This is a crucial step towards our goal of making our default pension funds carbon net-zero by 2050, and to halving carbon emissions between 2019 and 2030. Once these changes have been made, we expect to have transitioned over £15 billion into ESG strategies across our range of default funds over the last three years.1

The new ESG equity funds in more detail

We collaborated with BlackRock on the design of the new ESG equity funds, and believe they set a new standard for sustainable index investing in the UK.

The funds are passive funds, which means they track the performance of a chosen index by holding the same investments as that index, in the same proportions. This new fund range tracks specially developed ESG-enhanced indices. The funds invest respectively in the equities of continental Europe, global emerging markets, the UK, Japan, the US and the Pacific region excluding Japan.

The indices tracked by the funds have an explicit target to reduce carbon emissions intensity by at least 30% relative to their ‘non-ESG’ parent indices, to meet the increasing demand from investors and employers for climate-aware investment products. To help meet this target, they ‘reweight’ the funds to invest less in firms with poor emissions records, and more in firms with stronger records.

The funds exclude firms that invest in the following:

1. United Nations Global Compact

  • Screening limits: Violators

2. Controversial weapons

  • Screening limits: Any tie

3.  Tobacco

  • Screening limits: Producers, 5% or more of aggregate revenue

4. Thermal coal

  • Screening limits: 5% or more of revenue from extraction, 5% or more of revenue from power generation

5. Oil sands

  • Screening limits: 5% or more of revenue from extraction

6. Nuclear weapons

  • Screening limits: Manufacturers, component and platform manufacturers (exclusive and dual use), platform component manufacturers (exclusive) and Auxiliary services

7. Civilian firearms

  • Screening limits: Producers, 5% or more of aggregate revenue

8. Alcohol

  • Screening limits:5% or more of production revenue and 15% or more of aggregate revenue

9. Gambling

  • Screening limits: 5% or more of operation revenue and 15% or more of aggregate revenue

10. Adult entertainment

  • Screening limits: 5% or more of operation revenue and 15% or more of aggregate revenue

BlackRock also uses information from the ESG data-provider, Sustainalytics, to determine if a company has a severe ‘controversy score’. The controversy score measures companies on 23 ESG controversy topics, including business ethics, environmental issues, diversity and opportunity, tax fraud and conspiracy amongst others. Companies with severe controversy scores are excluded.

Moving UK corporate bonds to ESG strategies – important for those at retirement

We’re taking this opportunity to also move UK corporate bond investments in the affected default funds into the iShares ESG Sterling Corporate Index fund. This fund aims to track an ESG Non-Gilts Index which screens out issuers by using similar criteria to the equity funds covered above.2

This move is particularly significant for the Aegon Workplace Default fund investors who’ve reached retirement, because at that point over 20% of their investment is allocated to UK corporate bonds.

Tim Orton, Aegon’s Managing Director for Investment Solutions, said:

'We are excited to have worked with BlackRock on this new range of index-based funds and I’m proud that Aegon UK is setting the standard when it comes to sustainable index investing in a workplace default fund.

Enhancing the ESG credentials and overall exposure in our Aegon Workplace Default fund, and others, is a significant step for Aegon as we move closer to achieving our net-zero commitments for default funds and aligning to the Paris climate accords. The progress we’ve made in this area also demonstrates our commitment to meeting the growing demand from our customers who want their investments to help address climate change challenges and improve the world in which we live.

Around 90% of scheme assets are often invested in default funds and therefore we have a responsibility to ensure our investment actions are meeting their investment beliefs in the easiest way possible.'

Responsible investment enhancements for other default funds

The new ESG funds from BlackRock will also be added to the following Aegon funds. Once the change is complete, the proportion of each fund that considers responsible investment criteria will be as follows:

1.Aegon Workplace Default

  • Growth stage, new ESG allocation – 60%
  • In retirement, new ESG allocation – 40%
  • Fund Factsheet – Aegon Workplace Default

2. Aegon Flexible Income Pathway: plan to start taking long-term income within next five years

3. Aegon Growth Pathway: no plans to touch my money within next five years

4. Aegon Growth Tracker (Annuity Target)       

5. Aegon Growth Tracker (Cash Target)

6. Aegon Growth Tracker (Flexible Target)       

7. Balanced Tracker (Annuity Target)    

8. Balanced Tracker (Flexible Target)    

9. Default Equity & Bonds Lifestyle        

10. GPP Default     

  • Growth stage – 60%
  • In retirement, new ESG allocation – n/a
  • Fund Factsheet – GPP Default

11. Stakeholder Default    

  • Growth stage – 60%
  • In retirement, new ESG allocation – n/a
  • Fund Factsheet – Stakeholder Default

Growth stage investors are those who have around six years or more to go until their target retirement date, meaning their mix of investments has not yet automatically started to change to prepare savings for retirement.

The value of an investment can fall as well as rise and isn’t guaranteed. The final value of a scheme member's pension pot when they come to take benefits may be less than has been paid in. Please view fund factsheets for up-to-date fund details and investment risks.

Find out more about how investing responsibly can help support the fight against climate change and social injustice.

 

1Estimated figure, based on predicted fund values as at July 2022. Market volatility may affect this estimate.

2 Exclusions for iShares ESG Sterling Corporate Index Fund: Tobacco, Controversial weapons, Nuclear weapons, UN Global Compact violators, Thermal Coal (>5% revenue), Oil sands (>5% revenue), Civilian firearms (all producers excluded, retailers excluded if >5% revenue), Oil & gas equipment and services (>5% revenue), Oil & gas extraction and production (>5% revenue), Fossil fuel reserves.