Innovative solution in response to growing demand from DC schemes to align with members’ ESG values, while protecting, and enhancing, real assets against the damaging effects of climate change.
4 Oct 2021
Legal & General Investment Management (LGIM) today announces the launch of its Sustainable DC Property Fund (‘the Fund’), in response to a growing demand from DC schemes to access real assets and to incorporate more ambitious environmental, social and governance (ESG) targets.
The Fund is reshaping an existing property portfolio to include responsible investing as a core target, with explicit environmental, social and governance (ESG) objectives, including net zero operational carbon in the direct property portfolio by 2030. The Fund is already measuring carbon emissions and has set reduction objectives in line with ‘science-based’ targets.
In addition to LGIM’s wider efforts to advance the low-carbon transition, the Fund has already taken actions to deliver measurable progress on ESG with a focus on explicitly reducing operational energy consumption. The Fund has developed carbon reduction roadmaps at individual asset level and commissioned an estimate of social value created by the Fund, as a baseline against which to measure future social impact. This is already influencing occupier engagement and producing tangible outcomes. Occupiers are also being screened based on ESG exclusion criteria.
Valued at £238 million (as at 30 June 2021), it provides exposure to a diversified portfolio of assets across sectors and aims to achieve both income and long-term capital growth. In addition, the Fund will target a 30 per cent allocation to the L&G Global Real Estate Equity Index Fund to provide liquidity and support daily dealing for DC clients.
On top of the specialist Real Assets ESG team which operates across LGIM Real Assets, the Fund has dedicated resource working to support full ESG integration in its asset management, investment strategy and decision making.
Michael Barrie, Director of Fund Management for LGIM Real Assets: “Real estate is central in the transition to net zero as buildings play a major role in supporting a low-carbon economy and society. The demand for real assets is growing, three quarters of our recent major investment consultant conversations in DC Distribution have emphasised demand for them. We believe that protecting and enhancing real assets against the effects of climate change will create long-term value and performance. We are adopting this positioning now to capture this performance and to help enhance the long-term financial value of real estate.”
Rob Martin, Director of Strategy and ESG for LGIM Real Assets: “The Fund will provide a market-leading offering for clients that demand an increased focus on ESG. Providing a portfolio that positions towards the highest net zero standards will benefit both occupier demand and investment performance, as well as reduce risk.”
Veronica Humble, Head of DC Investments for LGIM: “Our research shows that DC members care deeply about ensuring that their pensions are invested in a responsible manner. The Sustainable DC Property Fund has ambitious carbon reduction targets and provides diversification through access to an alternative asset class that combines income and long-term capital growth.”
Investment Property Forum research forecasts that DC assets are set to grow to £1 trillion by 2028 and allocation to real estate is forecast to increase from 1.5 per cent to 4 per cent, and alternatives from 2 per cent to 8 per cent by 2027, coupled with the increasing demand for protecting and enhancing real assets against the effects of climate change.
According to the World Green Building Council, the operation of buildings, from energy to heat, cool and light buildings, is responsible for 28 per cent of global carbon emissions, with a further 11 per cent arising from the construction process. A major shift is required in the way that buildings are constructed and operated to manage environmental and social impact.
Established in 1836, Legal & General is one of the UK's leading financial services groups and a major global investor, with over £1.2 trillion in total assets under management* of which 39% is international. We have a unique and highly synergistic business model, which continues to drive strong returns. Legal & General provides powerful asset origination and management capabilities directly to clients, which also underpin our leading retirement and protection solutions. We are a leading international player in Pension Risk Transfer, in UK and US life insurance, and in UK workplace pensions and retirement income. Our purpose is to improve the lives of our customers and create value for our shareholders. Through inclusive capitalism, we are investing in long-term assets, such as real estate and infrastructure, that can help build a better society for the future.
*as at HY 2023
Legal & General Investment Management
LGIM is one of Europe’s largest asset managers and a major global investor, with total assets under management of £1.16 trillion1 ($1.47tn, €1.35tn, CHF 1.31tn). We work with a wide range of global clients, including pension schemes, sovereign wealth funds, fund distributors and retail investors.
For more than 50 years, we have built our business through understanding what matters most to our clients and transforming this insight into valuable, accessible investment products and solutions. We provide investment expertise across the full spectrum of asset classes including fixed income, equities, commercial property, and cash. Our capabilities range from index-tracking and active strategies to liquidity management and liability-based risk management solutions.
1 Data as at 30 June 2023. Data combines assets under management by LGIM in the UK, LGIMA in the US and LGIM Asia in Hong Kong.
Assets under management include securities and derivatives positions
*as at HY 2023