LifeSight, Willis Towers Watson’s UK defined contribution (DC) master trust, is to allocate around half of the equity investments within the default fund into Environmental, Social & Governance (ESG) investment strategies by Q4 2018.
This is the first master trust of its kind to make ESG a major part of the default fund, which is designed to improve outcomes for scheme members, through increasing diversification and producing better risk-adjusted return scenarios, as part of adapting the LifeSight investment solutions for the changing DC landscape.
The ESG allocation will be split between two strategies:
The MSCI Adaptive Capped ESG Universal Index invests in both developed and emerging markets with a highly diversified portfolio that spreads capital and risk more evenly between stocks compared to a traditional index strategy. It also invests more in companies with strong and improving ESG attributes. Willis Towers Watson has worked with MSCI to develop this index.
The Robeco Global Sustainable Multi-Factor Equities Index is an active strategy that invests in equities in a systematic manner, allocating to individual stocks based on a number of factor attributes such as valuation, quality, momentum and low volatility, and considers the ESG attributes of each stock and the overall portfolio as key parts of the investment process.
LifeSight’s selection of these strategies supports Willis Towers Watson’s belief that the principles underlying sustainable investments, namely being long-term strategies that integrate ESG factors and effective stewardship, form the cornerstone of a successful investment strategy and should be a key part of all investors’ approaches.
David Bird (pictured), Head of Proposition Development for LifeSight, says: “Fundamentally, this move has been made to improve outcomes for scheme members. It has been in our thinking for some time, and so we’ve been working to develop the most appropriate vehicles to take the strategy forward at the right time and deliver what we consider will be the most optimal outcomes. That is in terms of performance, risk management and value for members. The construction of these two vehicles has enabled us to confidently make this substantial change to the default fund’s asset allocation, and keep LifeSight’s investment approach ahead of the curve and still offering great value for members.”
“The DC investment world faces a range of challenges. Adding ESG’s risk profile to our investment mix supports the growing member and employer appetite for sustainable investment, whilst maintaining the returns they need for retirement.”
“ESG factors have increasingly been on the investment agenda for DC trustees, so they need to be thinking about where it fits into their scheme’s glidepath, assessing member demand and developing the right strategies to deliver for them.”