Nest partners with Lombard Odier for thematic strategy

The pension provider currently invests half its £36bn portfolio (50.4%) in listed equity funds that aim to support the transition to net zero by 2050.

However, the LOIM mandate will allow Nest to invest specifically in three key themes: climate change mitigation and adaptation, natural capital and social issues.

“[These are] mega-trends which, driven by changes in reporting and disclosure requirements, policy, regulation and economic shifts, will become front and centre for how assets get valued,” said Nest’s chief investment officer Liz Fernando when the partnership was announced on Wednesday.

“We want to be ahead of the curve. We want to be positioned for when the benefits start to arrive, so that our members benefit from them.”

An initial £1.75bn has been allocated to the mandate, to be deployed gradually from 1 April. This is estimated to scale to £5bn in assets by 2030 – approximately 5% of the £100bn total assets Nest expects to have under management by that date.

The funds will be sourced from Nest's incoming cashflow, estimated at £500m a month, rather than divestment from existing portfolios.

LOIM was appointed to manage the mandate after a lengthy procurement process that was first announced in May last year.

Fernando said LOIM stood out due to its research processes, which other asset managers were reluctant to disclose. She added this was an obstacle Nest had not encountered when setting up past mandates.

“[LOIM] was willing to share that information with us and we think that means we can have a more productive partnership over the long term,” Fernando said.

"One of the ways that we are aligned is the understanding that this isn't just about doing all the things we're doing today in a slightly cleaner way. Rather, it’s about quite a profound [change] to the organisation of the economy and value chains,” explained Thomas Hohne-Sparborth, LOIM’s head of sustainability research.

He added that LOIM was not focused on “understanding which companies have slightly better practices or policies in place” but on making sure “the inherent nature” of companies’ business models are well positioned for large-scale economic shifts.

In addition to this fund, Nest is establishing a timber mandate that is in the shortlisting and due diligence stage.