£9bn UK pension fund adopts multi-factor index for climate strategy

The Merseyside Pension Fund is to use a FTSE Russell index for its Climate Risk strategy

Merseyside Pension Fund, the UK’s fifth largest local government pension scheme, is to use a newly launched climate and multi-factor index for its Climate Risk Strategy within its listed equity portfolio.

On Thursday, index provider FTSE Russell announced that it would be launching the FTSE All World Climate Balanced Comprehensive Factor Index from November and that Merseyside Pension Fund was to be the launch customer for the benchmark. Merseyside Pension Fund is one of the largest local government pension schemes in the UK with £9 billion of assets under management.

In an interview with ESG Clarity, Aled Jones, head of sustainable investing (Europe) at FTSE Russell, said his company has been mindful of Merseyside’s specific approach to managing climate risk in the development of the index.

“By allocating a decent chunk of capital to an index with climate considerations is a great way of putting those plans into practice,” he said. “It signals to companies that this is an important issue.”

In a statement announcing the launch of the FTSE All-World Climate Balanced Comprehensive Factor Index, Jones described combining a multi-factor approach with a focused set of sustainability parameters as “a new and exciting approach” for the integration of sustainability and ESG considerations into passive investment strategies.

He said: “UK pension funds are actively engaging with companies on their ESG practices and the FTSE All-World Climate Balanced Comprehensive Factor Index will provide an additional powerful basis to increase corporate ESG transparency and performance.”

In the same statement, Owen Thorne, investment manager of the Merseyside Pension Fund added: “We are pleased to have worked with FTSE Russell to produce a low carbon index solution that provides us with an investable, risk-efficient means of achieving our decarbonisation goals.”