ESG MULTI-ASSET
ESG BUILDS MOMENTUM IN MULTI-ASSET
There are still relatively few options for multi-asset investors who want an Environmental, Social and Governance (ESG) focus. With its Future World Multi-Index range, the LGIM Asset Allocation team aims to fill this gap. Justin Onuekwusi and Andrzej Pioch discuss how they’ve built the new funds.
The momentum behind sustainable investing has gathered pace in recent years: a confluence of increasing awareness, regulatory pressure and stronger environmental reporting have seen flows directed towards environmental, social and governance (ESG)-focused investments. There are early signs that the Covid-19 crisis may have accelerated this trend. The most recent Pridham Report (2020) showed that ESG and ethical funds took the lion’s share of investment in the early part of this year and as the crisis started. Recent Morningstar figures show that these type of funds have outperformed their peers throughout the crisis so far. (https://www.ft.com/content/46bb05a9-23b2-4958-888ac3e614d75199) However, as yet, there has been relatively little in the multi-asset space for ESG investors and certainly not at a lower price point. Legal and General Iinvestment Management’s (LGIM) Asset Allocation team sought to address this gap with the launch of its Future World Multi-Index funds in April 2019, applying the same disciplines used across its Multi-Index funds, but with an ESG agenda.
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In doing this, it calls on LGIM’s ‘Future World’ range. This is a collection of index funds, built on three pillars: long-term thematic analysis, the integration of ESG factors, and active ownership. The funds cross themes, asset classes and geographies and have been designed to help identify new opportunities, while also managing risk effectively.
ESG WEIGHTING The funds include a range of index building blocks and apply an ESG ‘tilt’ based on a proprietary scoring mechanism. The funds are similar to traditional, well-diversified index funds but with a higher weight to companies that score well against environmental, social and governance criteria. The Asset Allocation team, comprising economists, strategists and fund managers, uses these building blocks to deliver an ESG multi-asset solution for its investors. Justin Onuekwusi, who manages the funds alongside Andrzej Pioch, says: “We saw there was a growing demand from our client base
