BlackRock’s flagship UK DC default strategy, LifePath, is embarking on the next phase of its ESG integration over the coming months. The move will materially increase LifePath UK’s ESG exposure, with more than half of total LifePath UK assets (c.53% or c. £3bn) to become invested in ESG strategies by mid-2021.
BlackRock’s LifePath UK strategy, pioneered in 1997, is a series of target date funds (TDFs), designed specifically for UK DC pension scheme savers. LifePath provides members with broad and diversified access to twelve asset classes invested through low-cost, transparent index funds tailored for members based on their age.
LifePath already uses an ESG integration policy ensuring a continuous review of the investment strategy and consideration of underlying investments to improve long term outcomes through management of exposure to ESG risks. In July 2019 LifePath UK funds incorporated their first sustainable building block, the BlackRock ACS World ESG Equity Tracker Fund, a global optimised ESG exposure.
The increase in ESG exposures being announced today, will come from developed market equities, where LifePath will be investing in two ESG index funds. Exposure will significantly increase in the BlackRock ACS World ESG Equity Tracker Fund and a new exposure to the MSCI World ESG screened developed market index will be added. The team are also reviewing other asset classes as part of their future ESG integration plans.
Sarah Melvin, Head of UK at BlackRock, said: “The changes we are making to the LifePath strategy reflect our commitment to deliver sustainable long-term returns on behalf of pension savers, as they set money aside and invest for their financial future. As pension scheme trustees increasingly look for ways to further incorporate ESG investments into their schemes, this strategy enables them to balance the risk and return of their portfolios, while fulfilling their regulatory obligations.”
LifePath is the principal default of the Aegon Master Trust. Tim Orton, Managing Director for Investment Solutions at Aegon UK commented: “I’m excited that these changes will mean over 200,000 members of Aegon’s workplace schemes through our TargetPlan proposition will benefit from increased ESG exposure and reduced carbon intensity in their investment. As our Master Trust default fund, Lifepath is a critical solution for current and future Aegon scheme members and we are committed to satisfying their increasing interest in responsible investing. I’m delighted that this change addresses this growing customer need.”
LifePath is designed to grow savings over an individual’s working life and facilitate spending in retirement. It aims to take an age-appropriate risk for UK savers who are increasingly reliant on their DC pension for retirement income. The LifePath team adjusts portfolios by focusing on growth early in the savings journey and, through diversification, manage risk as retirement appears on the horizon.
In parallel to the increase in ESG exposures, LifePath’s asset allocation also continues to evolve. The strategy will aim to reduce UK equity exposures while, correspondingly, looking to increase exposure to developed markets, as investors shift to direct investments in global equity vehicles. LifePath is also making a small increase to emerging market equities within its strategy, given our view around the strong long-term growth potential of the asset class for younger investors.
As a leading DC default fund, representing thousands of savers, LifePath considers delivering value for money as a part of its commitment to members, and we are pleased to report that fees will remain the same as a result of these changes.