Industry Funds Management (IFM) has launched a new low-carbon and environmental, social and governance (ESG) strategy, securing its first $100-million mandate from HESTA.
The new product is a quantitative investment strategy based on IFM's indexed Australian equities process.
IFM chose this approach because it allows for flexibility in tailoring a portfolio to a client's needs.
"[We] wanted to have something very systematic," IFM listed equities director Laurence Irlicht said.
"The benefit of the quant approach is that you can stipulate exactly what ESG or CO2 (carbon dioxide) enhancements you want, and we can deliver that with the minimum possible risk.
"We realised that different clients are going to want different things in this field, so this product can be tailored to what clients want."
IFM uses MSCI ESG Research's data and research to support the integration of ESG factors into the investment process.
"We can tailor both on the enhancement side and the risk side - the client might have a particular desire for a certain level of enhancement in E, S, G or CO2," Irlicht said.
"We can dial up or down any of those enhancements, depending on what the client wants.
"On the risk side, we can be sector neutral on various levels. We can also have particular active weight limits.
"It is a matter of finding out what best suits the enhancement and risk requirements of the clients and build the optimal portfolio for them."
The strategy could slash carbon emissions by half, IFM said.
"These strategies give institutional investors a clear avenue for reducing their exposure to ESG and carbon risk with very reasonable tracking error," IFM listed equities executive director Aidan Puddy said.
"For instance, a low-carbon version of the portfolio can be engineered to deliver 50 per cent of the carbon emissions of an equivalently sized portfolio invested in the S&P/ASX 200 Index."
