Co-op Pace scheme switches to sustainable DC default

Jonathan Stapleton reports...

The £11bn Co-operative Group Pension Scheme (Pace) has chosen LGIM’s future world multi-asset fund as its defined contribution (DC) default, switching £290m of member assets into the strategy.

The scheme said that, as a result of the move, over 90% of Co-op employees’ £315m DC assets will be invested in companies and bonds that score heavily when it comes to environmental, social and governance (ESG) performance.

The LGIM fund provides equity and fixed income exposure to a variety of markets, largely by allocating across a range of LGIM’s future world index funds.

These funds incorporate ESG factors into their design – ‘tilting’ investment towards those firms with higher scores. Certain companies – such as those involved in the production of controversial weapons and pure coal miners – are excluded altogether from portfolios.

Co-op director of pensions Gary Dewin said: “In making this decision, the trustees were keen to provide a default fund for Co-op colleagues with a proven investment track record, but one which also aligns with the Co-op’s own sustainability agenda and ethos.”

LGIM head of DC Emma Douglas added: “We are delighted that the Co-op pension scheme has chosen the LGIM future world multi-asset fund as the default fund for its DC scheme.

“This fund incorporates ESG considerations into the underlying indices used to construct the fund. We’re seeing increased demand from pension scheme members for investments which are aligned to their values – for example a recent survey we commissioned found that almost 60% of scheme members said it was important that fund managers actively consider ESG issues such as climate change, levels of diversity and executive pay when choosing the companies in which to invest their money.”

Recently, and in response to the housing crisis, the Pace trustees set aside £50m of DB assets to invest in high-quality affordable housing as part of an inflation-linked property mandate managed on their behalf by PGIM Real Estate.

LGIM’s original future world fund offering was developed in collaboration with the £30bn HSBC Pension Trust, which decided to choose the global equity version of this fund as the equity default option for £1.85bn of its defined contribution assets in 2016.