LGIM launches Sustainable DC Property Fund

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Legal & General Investment Management (LGIM) has launched its Sustainable DC Property Fund, in response to a growing demand from DC schemes to access real assets and to incorporate more ambitious environmental, social and governance (ESG) targets.

The Fund is reshaping an existing property portfolio to include responsible investing as a core target, with explicit environmental, social and governance (ESG) objectives, including net zero operational carbon in the direct property portfolio by 2030. The Fund is already measuring carbon emissions and has set reduction objectives in line with ‘science-based’ targets.

In addition to LGIM’s wider efforts to advance the low-carbon transition, the Fund has already taken actions to deliver measurable progress on ESG with a focus on explicitly reducing operational energy consumption. The Fund has developed carbon reduction roadmaps at individual asset level and commissioned an estimate of social value created by the Fund, as a baseline against which to measure future social impact. This is already influencing occupier engagement and producing tangible outcomes. Occupiers are also being screened based on ESG exclusion criteria.

Valued at GBP238 million (as at 30 June 2021), it provides exposure to a diversified portfolio of assets across sectors and aims to achieve both income and long-term capital growth. In addition, the Fund will target a 30 per cent allocation to the L&G Global Real Estate Equity Index Fund to provide liquidity and support daily dealing for DC clients.

On top of the specialist Real Assets ESG team which operates across LGIM Real Assets, the Fund has dedicated resource working to support full ESG integration in its asset management, investment strategy and decision making.

Michael Barrie, Director of Fund Management for LGIM Real Assets, says: “Real estate is central in the transition to net zero as buildings play a major role in supporting a low-carbon economy and society. The demand for real assets is growing, three quarters of our recent major investment consultant conversations in DC Distribution have emphasised demand for them. We believe that protecting and enhancing real assets against the effects of climate change will create long-term value and performance. We are adopting this positioning now to capture this performance and to help enhance the long-term financial value of real estate.”

Rob Martin, Director of Strategy and ESG for LGIM Real Assets, adds: “The Fund will provide a market-leading offering for clients that demand an increased focus on ESG. Providing a portfolio that positions towards the highest net zero standards will benefit both occupier demand and investment performance, as well as reduce risk.”

Veronica Humble, Head of DC Investments for LGIM, says: “Our research shows that DC members care deeply about ensuring that their pensions are invested in a responsible manner. The Sustainable DC Property Fund has ambitious carbon reduction targets and provides diversification through access to an alternative asset class that combines income and long-term capital growth.”

Investment Property Forum research forecasts that DC assets are set to grow to GBP1 trillion by 2028 and allocation to real estate is forecast to increase from 1.5 per cent to 4 per cent, and alternatives from 2 per cent to 8 per cent by 2027, coupled with the increasing demand for protecting and enhancing real assets against the effects of climate change.

According to the World Green Building Council, the operation of buildings, from energy to heat, cool and light buildings, is responsible for 28 per cent of global carbon emissions, with a further 11 per cent arising from the construction process. A major shift is required in the way that buildings are constructed and operated to manage environmental and social impact.

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