ESG investing has been gaining increased momentum, especially in the investment  sector. Last May, the Universities Superannuation Scheme (“USS”), the UK’s largest private pension scheme,  announced an ambition to become net zero for carbon for its investments by 2050 if not before. Today, USS  Investment Management, its wholly-owned investment arm, is introducing a climate “tilt” to a portion of the  Global Developed Markets Equity component of the Defined Benefit and Defined Contribution funds held by the  scheme. Managed by Legal & General Investment Management (“LGIM”), the change will affect over £5bn of  assets under management, and will use Solactive USS Developed Markets Climate Transition Benchmark,  developed in conjunction by USS and Solactive. 

The approach will effectively reward companies that can demonstrate they are on the path to lowering  greenhouse gas emissions by giving them a higher weighting. The converse will be true of companies that  cannot demonstrate this.  

As well as barring companies that rank poorly on the four UN Sustainable Development Goals (SDGs) relating to environmental sustainability and climate impact, the index is required to be overweight in  companies that are successfully hitting adequate decarbonisation targets and must not be underweight in  ‘high-impact sectors’. These are ones that are deemed critical to the successful transition to a low-carbon  economy such as manufacturing and construction. It will also avoid investing in companies that fall foul of  the UN Global Compact, a voluntary initiative of 10 guiding principles designed to create sustainable  companies and stakeholders. 

This will be a first important step in USS’s path to achieving the ambition to be Net Zero and will initially reduce  emissions compared to the broad equity market by at least 30%, and further impact its carbon intensity by 7%  each year thereafter. This will include all Scope 1, 2 and 3 emissions from day one.