Background: optimising customer outcomes
In 2019, Royal London Asset Management and our parent group, Royal London, identified the potential to develop the equity elements of its key propositions with the aim of further improving customer outcomes. The main beneficiaries of any development would be investors in the flagship governed range of risk‑rated multi‑asset portfolios, including the workplace default investment.
There was a growing expectation among workplace defined contribution (DC) clients that responsible investment considerations should be reflected in their investment options. This was creating competitive pressures. Meanwhile, evolving regulatory expectations and Royal London’s ambition to advance its responsible investing capabilities also contributed to a desire to explore propositional enhancements.
There was a wish to provide customers with a solution that harnessed Royal London Asset Management’s long-established responsible investing expertise. Active strategies can express ESG views through stock selection. But the Royal London range of risk‑rated multi‑asset portfolios used passive equity funds, which did not formally integrate ESG factors. Any ESG integration needed to preserve expected risk and returns and avoid excessive tracking error, all while ensuring value for money.
Through close collaboration between the Royal London investment proposition team and our quantitative and responsible investing (RI) teams, a solution began to take shape.
Meeting DC client needs
This partnership enabled Royal London Asset Management to draw on its active ESG expertise while designing a systematic, rules-based approach to suit the needs of Royal London’s large-scale DC use.
Royal London wanted low-cost equity exposure that better reflected ESG considerations, especially carbon reduction and governance, while aiming to provide benchmark-like returns for customers. Analysis was carried out to understand the impact different tracking error limits would have and 1% tracking error limit presented the most appropriate level to achieve a material improvement in ESG profile while continuing to deliver returns in line with benchmark. In our view, this boundary was critical in helping the funds remain within default strategies, where even modest deviations from benchmarks can have meaningful implications for member outcomes.
Then came the issue of potential exclusions. Rather than imposing rigid exclusions or aggressive decarbonisation pathways, the group opted to retain the flexibility necessary to retain focus on customer outcomes. This approach reflected a broader obligation to deliver responsible investment ambitions within the fiduciary duty to customers. The approach also aligns with our wider preference for engagement with companies over exclusions. This is based on our belief that by working closely with companies on the issues that matter most to them and to clients, it is possible to support better corporate practices and aim to deliver stronger long-term returns.
Designing the Tilt strategies
A key turning point was the expansion of our internal capabilities following the arrival of additional expertise. This allowed the team to move beyond traditional passive investing and begin designing a practical, repeatable approach to ESG integration. This is when the concept of the Tilts strategies came to life.
Rather than create a custom index, the approach focused on making numerous incremental improvements versus the benchmark index, the cumulative effects of which were expected to be material. This core design principle aimed to produce significant carbon intensity and governance improvements, rather than exclude companies or sectors. As well as preserving broad market exposure, this approach retains voting rights and promotes engagement with companies.
Initially, two ESG inputs were prioritised. The first was a greenhouse gas emissions reduction tilt, designed to lower portfolio carbon intensity relative to the benchmark. Targets differed by region to reflect market structure, with lower initial reductions in the UK due to its higher concentration of carbon intensive companies. The second was a governance-focused remuneration tilt, underweighting companies where we had persistently voted against executive pay practices. Importantly, the approach allows scope for nuance. The Tilts strategies are not just driven purely by data; they also incorporate the RI team’s established approach to governance research and proxy voting.
Over time, the framework evolved. While formal net zero commitments were not initially formally embedded, ongoing collaboration between Royal London Asset Management and our parent group led to updated policies reflecting a more explicit alignment with group level net zero ambitions. These changes took effect in December 2025.
The development of the governance tilts has been a continuous process and has been supported by our growing internal responsible investing infrastructure. The approach has been developed to align with our Good Governance Policy. Alongside remuneration, the RI team now assesses companies’ board make-up, audit quality and the ways they interact with stakeholders, customers and communities. The strategies then tilt away from the worst performers in each sector.
Results: a product designed to suit the needs of DC savers
The outcome of this collaboration has been a differentiated solution that combines elements of quantitative and active investing and aligns well with the needs of workplace DC clients. This was reflected in the rapid adoption of the strategies by Royal London. While initially intended for use as a small subset of the overall DC book, uptake rapidly grew and all the passive equity assets were eventually transitioned.
In terms of carbon intensity reduction, the Tilt strategies met their stated carbon objectives of achieving a portfolio-level carbon intensity of between 10-30% better than the benchmark. This has been realised across a significant portfolio without restricting the investable universe or materially reducing diversification.
In terms of returns, the strategies have achieved what they were designed for and delivered long and short-term performance in line with benchmarks, and in some periods ahead of benchmark.
The Tilts strategies have delivered these financial and responsible investing objectives within the agreed strict risk return characteristics.
This development of the Tilts strategies demonstrated how close collaboration between Royal London Asset Management and the asset owner translated high level responsible investment ambitions into a practical, client-focused product. By prioritising financial outcomes, transparency and flexibility, Royal London Asset Management and Royal London created a solution intended to be suitable for workplace pension investing; one that integrates ESG considerations in a measured, credible way, and is suited to the long-term needs of DC savers.
A platform for developing future solutions
This experience was another step in Royal London Asset Management’s long history of providing solutions to improve the outcomes of workplace customers. As an organisation, we are adept in
fostering close working partnerships with asset owners to co-design practical, scalable solutions that directly address today’s challenges. This could include integrating responsible investment considerations into large default arrangements while preserving benchmark-like risk/return characteristics, maintaining cost discipline, or balancing policy ambition with fiduciary duty.
Our proven approach to collaborative solution building can help to shape an asset owner’s high-level goals into transparent outcomes that are fit for purpose and provide better outcomes for workplace DC customers.
Past performance is not a guarantee or reliable indicator of future returns. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested.
Important information
For Professional Clients and Qualified Investors. This marketing communication is a financial promotion. The views expressed are those of Royal London Asset Management at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.
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Issued in March 2026 within the UK and Switzerland by Royal London Asset Management Limited, 80 Fenchurch Street, London, EC3M 4BY. Authorised and regulated by the Financial Conduct Authority in the UK, firm reference number 141665. A subsidiary of the Royal London Mutual Insurance Society Limited.
Issued within Europe (ex-Switzerland) by FundRock Distribution S.A. (“FRD”) the EU distributor for Royal London Asset Management Limited. FRD is a public limited company, incorporated under the laws of the Grand Duchy of Luxembourg, registered office at Airport Center Building, 5, Heienhaff, L-1736 Senningerberg, Luxembourg and registered with the Luxembourg trade and companies register under number B253257.
