A new carbon-efficient tracker fund has been launched by Legal & General Investment Management.

The fund, developed using a custom index from the FTSE Group with carbon data from Trucost, an environmental data company, is designed for pension investors concerned about carbon risk.

The LGIM equity carbon optimised index fund aims to achieve returns close to the FTSE All-Share index.

The fund will direct investment towards carbon-efficient companies and reduce fund exposure to rising carbon costs.

It will be around 20 per cent less carbon intensive than the FTSE All-Share index.  Carbon intensity is measured by tonnes of carbon emitted per unit of revenue.

Tests on the fund found that emissions attributable to the carbon- efficient index were consistently 20 per cent lower than the FTSE All-Share while still closely tracking the FTSE All-Share. This means investors have the opportunity to reduce exposure to rising carbon costs without sacrificing their returns.

Mike Craston, managing director, LGIM institutional business, said: “LGIM has launched this fund in response to client demand for a carbon efficient tracker fund. Passive investors in particular should be drawn to the index due to its lower carbon risk combined with a fund designed to deliver very low tracking error, compared to its benchmark.”

The fund was initially developed for BT Pension Scheme Management (BTPS) but LGIM are confident that other investors will want to invest in the fund.

Helene Winch, director, head of policy at BTPS, said: “We have been actively exploring ways to efficiently allocate capital to investments that could outperform in times of higher carbon prices, particularly as a result of policy moves towards a low carbon economy.”

BTPS has indicated it will invest £100m into the fund.

David Harris, director of responsible investment at FTSE, said: “The index that has been created specifically for the LGIM carbon optimised index fund demonstrates how FTSE is developing indices and custom solutions to support the integration of climate change into investments.”