SCOTTISH Widows has said it has allocated £2 billion of its pension portfolios to a fund that is expected to support the transition to a low carbon economy.

The pensions giant has become the first investor in a fund managed by Blackrock that looks to increase investment in companies that are well prepared for the shift and to reduce exposure to those that are less equipped.

Blackrock said the Climate Transition World Equity Fund has been designed to help investors benefit from a historic transition while also contributing to positive environmental outcomes.

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The fund’s managers will assess companies according to how they rank against their peers in terms of investing in areas such as energy production, clean technology and waste management. It will exclude firms active in areas such as the production of nuclear weapons and those who earn more than five per cent of their revenues from exposure to thermal coal or tar sands.

Lloyds Banking Group-owned Scottish Widows helped to design the fund.

Maria Nazarova-Doyle, head of pension investments at Scottish Widows, said: “Offering customers more sustainable investment choices, and challenging companies in which we invest to behave more sustainably and responsibly, is a central part of our strategy.”

She added: “Incorporating environmental, social and governance risks into a portfolio can have a meaningful financial impact on performance.”

Other asset managers have launched funds that can capitalise on growing investor interest in environmental, social and governance (ESG) issues.

These include Aberdeen Standard Investments, which was formed following the £11bn merger of Standard Life and Aberdeen Asset Management in 2017.

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Subsequently, Lloyds Banking Group decided to move £80bn funds managed by Aberdeen Asset Management on behalf of Scottish Widows to other firms.

Aberdeen Standard Investments launched a new Sustainable and Responsible Investment (SRI) Equity Fund in July.

It said the fund aimed to generate strong long-term performance by allocating capital to best-in-class environmental, social and governance companies.