Our approach to addressing market wide performance, due to our scale of index-holdings, allows for progressive and long term engagements that are focused on Beta rather than Alpha. We focus on standards, regulations and best practices in markets by engaging with key market makers and regulators as well as individual companies.
In addition, we have committed to provide clients with investment solutions which align with our broader ESG strategies, such as the Future World Fund range. This is a new generation of fixed income and equity funds currently under development, which incorporate ESG, and in particular, climate considerations. In the past year, we've launched UCITs and retail versions of the Future World Equity fund.
The Future world funds provide a way to showcase how climate change can be addressed by mainstream investors who are concerned about both short and long term impacts of climate change. Unlike many other climate related funds in the market where companies are labelled as green or not green, it focuses on the importance of the low carbon transition and tilted exposure away from carbon and into green revenue within each company and sector.
We launched this range of funds not as a one off optional fund but as a flagship fund in our index range, that is good enough to be pension schemes’ default funds - www.lgim.com/futurefund
As part of our Climate Impact Pledge, we committed in 2017 to engage with 84 of the most systemically important global companies, specifically on their governance and management of climate-related risks.
Companies that fail to embrace the transition to a low-carbon economy by demonstrating adequate strategy, governance and transparency through their public disclosures will be excluded from the Future World fund range, including index funds. Moreover, in all other LGIM funds that remain invested in those companies that have not met our criteria, we will vote against the election of the chair of the board until we see satisfactory change. Committing to vote against the chair because of a single issue such as climate change on a global basis sends a powerful message to companies that they should be raising their standards in this area.
We think the approach of combining engagement with divestment and voting, across all funds including index, is innovative and also important in order to encourage further and urgent action on climate change.