The UK auto enrolment pension scheme provider NEST has adapted its investment approach so that its default fund is invested in a new fund that responds to the challenge of climate change. This will be managed by UBS Asset Management and has been developed in partnership with the NEST in-house team.

Nest said that the new UBS Life Climate Aware World Equity fund will be a key building block in NEST’s ‘fund of funds’ structure and is designed to meet the specific needs of NEST’s membership. This move  is designed to send a strong message to companies NEST invests in that it expects to see measurable progress towards environmental sustainability, the pension scheme provided said.

The fund has a rules based investment approach with three key features - it applies a positive ‘tilt’ that will increase investment in companies identified as vital to combating climate change, for example those working on renewable energy; it applies a negative 'tilt' to reduce investment in those companies that are heavy carbon emitters, have fossil fuel reserves or are not making the sorts of change needed to meet emission reduction target and it concentrates voting and engagement activities on improving companies that most need to adapt their business models in order to meet climate change goals.

Mark Fawcett, NEST’s chief investment officer, said: "As responsible long term investors on behalf of our members, we can’t afford to ignore climate change risks and we’ve committed to being part of the solution. Through the UBS Life Climate Aware World Equity Fund we can start reducing our members’ exposure to some of the worst financial impacts. At the same time they’ll get in early in industries and technologies that’ll help the global economy move away from fossil fuels.

‘This fund breaks new ground and we’re delighted to have had the opportunity to work so closely with UBS on its development."

The new fund has been welcomed by responsible investment groups such as ShareAction and the UN's Principles for Responsible Investment.

Catherine Howarth, chief executive of ShareAction, said: "ShareAction warmly welcomes news that a portion of NEST’s default investment funds will now manage climate risks in a more systematic way, whilst tapping into the growth opportunities of the low carbon transition. This is a positive development for all of NEST’s members, particularly its younger members. Indeed, we see a strong case for this type of smart climate risk management being embedded in all of NEST’s global equities exposure, and look forward to engaging the scheme about that case."