The National Employment Savings Trust has teamed up with UBS Asset Management to create a "climate aware" equity fund that will form a major pillar in its overall investment strategy.
Called the UBS Life Climate Aware World Equity fund, the strategy will invest in companies on the FTSE Developed Index, with a tilt towards companies in the renewable energy sector, and away from high carbon emitters and those that are unprepared for the transition to a low-carbon economy.
It will aim to deliver returns "broadly in line" with the index, targeting a provisional maximum tracking error of 50 basis points.
Nest will initially invest £130m in the fund - accounting for 20 per cent of its total developed equity exposure, and 10 per cent of total investments in the default strategy.
For younger members of Nest, exposure to the climate aware strategy will be even greater, making up 30 per cent of the Foundation Phase.
Nest's chief investment officer Mark Fawcett said the scheme was taking this approach because younger members were more vulnerable to the negative financial effects of climate change.
"As responsible long-term investors on behalf of our members, we can't afford to ignore climate change risks and we've committed to being part of the solution," Mr Fawcett said.
"Through the UBS Life Climate Aware World Equity Fun we can start reducing members' exposure to some of the worst financial impacts. At the same time they'll get in early in industries and technologies that'll help the global economy move away from fossil fuels."
He insisted the decision was not a moral but a financial one, saying the scheme had a "fiduciary duty" to take climate risk seriously.
Mr Fawcett said the transition to a low carbon economy would "affect the way that economies behave and the way companies make money or lose money".
On the question of US president Donald Trump's sceptical attitude to climate change - seen by many as a major blow to any attempts to shift to a low-carbon economy - Mr Fawcett took a long-term view.
"His maximum term is eight years. Our 17-year-old [member] is definitely going to outlive that.
"Climate change is a reality. It’s scientifically proven that climate change is happening, and that man is responsible for a significant part of that climate change.
"That is not going to go away, and we’re seeing that being acknowledged in China and other major economies in the world. I think in the long-term the US attitude will change."
When asked whether Nest had consulted the Department for Work and Pensions on the new strategy, Mr Fawcett stated: "The investments of Nest are absolutely separate from government."
Malcolm Gordon, managing director, head of UK institutional at UBS Asset Management, described the fund as a "global solution" to a "global problem" for "global pension funds".
He said, while Nest was currently the only scheme signed up the fund, it was "open for business".
