Responsible investment is an approach to investing that aims to incorporate environmental, social and governance (ESG) factors into investment decisions, to better manage risk and generate sustainable, long-term returns.
Generally asset managers incorporate ESG factors, as risk premia , into asset selection when purchasing assets for their funds.
To give our customers choice, Scottish Widows offers three funds with clear policies, click on the fund to see the additional information:
- Scottish Widows Environmental Fund
- Scottish Widows Ethical Fund
- Scottish Widows Threadneedle UK Social Bond Fund.
You can find out more through the funds’ factsheets, available on our fund prices page.
Separate from our ethical funds, all Scottish Widows funds seek to exclude investment in cluster munitions and landmines companies. These activities are illegal in the UK and banned by international conventions to which the UK Government is a signatory. More information is available below.
Our approach to specific controversial issues
We consider the production and use of weapons that have an indiscriminate and disproportional impact on civilian populations as unacceptable. Often, the effects of these controversial weapons can be felt years after armed conflicts end. We believe the use certain weapons must be eliminated, including:
- Anti-personnel mines
- Biological and chemical weapons
- Cluster munitions
- Ammunitions containing depleted uranium
We do not invest in companies that are involved in the development, production, maintenance and trade of these weapons. Companies that produce or develop key and dedicated components for these weapons, or offer essential services for their use, are also excluded from investment funds.
Based on international agreements established in the Treaty on the Non-Proliferation of Nuclear Weapons, the only states allowed to possess nuclear weapons are the United States of America, United Kingdom, France, Russia and China. We do not invest in companies involved in the production and maintenance of nuclear weapons, or their essential parts, for any other country.
Controversial arms trade
Controversial arms trade involves supplying conventional weapons for which there is a substantial risk they will be used in conflicts and regions where human rights are violated. The prevention of controversial international arms trade is enshrined in the UN Arms Trade Treaty, which entered into force in December 2014. Recognising that the primary responsibility in enforcing the UN Arms Trade Treaty is with governments, we are committed to monitoring companies with heightened risk in this area, and engaging with them where necessary. We do not invest in companies that supply weapons to countries identified for arms embargoes by the UN Security Council or the European Union.
Scottish Widows invests in government bonds, and is thereby engaged in a financial relationship with sovereign governments. We incorporate environmental, social and governance factors into our analysis of government bonds since social or political instability may affect the creditworthiness of a country. Scottish Widows does not invest in government bonds or any other government-related debt from countries that systematically breach human rights. Countries should respect and uphold universally accepted values, such as the Universal Declaration of Human Rights. We refrain from investment in government bonds or debt of regimes that are currently under arms embargo of the United Nations or the European Union.
Human and labour rights
Scottish Widows recognizes fundamental human and labour rights. States and companies have the responsibility to respect the freedoms and rights of humans as enshrined in the Universal Declaration of Human Rights, the Guiding Principles on Business and Human Rights and the core standards of the International Labour Organization. We expect companies to disclose explicitly its policy to observe human rights both for their own operations as well as for their supply chains.
Attracting, developing and retaining talent contributes to the success of businesses. Good employment conditions and the promotion of employee satisfaction are important in supporting a safe and healthy workplace. We believe that everyone is entitled to equal opportunities, the freedom of association and protection from any form of discrimination. We find child and forced labour unacceptable and employees have a right to reasonable working hours and fair wages without any gender distinction.
We expect businesses to strive for diversity within their workforce and management teams. Companies should provide a safe and healthy workplace, and actively monitor health and safety through management systems, both within their own operations and their supply chains. Companies are also expected to provide a robust whistleblowing mechanism that allows employees and third parties to report on violations of workplace rules on health, safety and employee welfare.
We believe that climate change represents one of the biggest systemic risks for society, the economy and financial institutions. Mitigating climate change and reducing greenhouse gas (GHG) emissions are major global challenges. Scottish Widows believes that governments, companies and investors have a responsibility to facilitate a transition to a climate-resilient economy. We expect companies to combat climate change where they can, and to report on their direct and indirect GHG emissions. Companies are expected to operate with the goal of enhancing energy efficiency, investing in more environmentally friendly production techniques and contributing, and adapting, to the energy transition.
Scottish Widows recognises that poorly diversified thermal coal producers are most likely to be impacted by climate-related government regulation and therefore run the highest risk of their assets being stranded. Also, as coal is the most carbon-intensive fossil fuel, these companies contribute most to the GHG emissions that cause climate change.
Tax, fraud and corruption
Since paying taxes is a corporate responsibility, we expect companies to pay taxes in the countries where they have operations. In this respect, we support the Organisation for Economic Co-operation and Development’s framework on base erosion and profit shifting (also known as ‘BEPS’). BEPS refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low- or no-tax locations. We expect the companies that we invest in to have ethical business practices that are free from fraud and corruption. We also expect that businesses refrain from such practices in their supply chains. In addition to actively fighting fraud and corruption, businesses must report on the systems they have in place for controlling and reporting such malpractices.
Nature, Environment and Biodiversity
The economy is changing from a linear to a circular system. In the circular economy, raw materials are reused so that they retain their value. Manufactured products are increasingly designed and produced to enable reuse and repair, or allow for easier recycling in order to minimise waste. Scottish Widows supports the transition to a circular economy, and expects businesses to take a responsible approach towards the use of raw materials. Care for nature, the environment and preserving biodiversity are important business responsibilities. In addition to environmental stewardship, the preservation of biodiversity is important. Companies that pose an increased risk to biodiversity should comply with the UN Convention on Biological Diversity and should report transparently on measures they take to promote and protect biodiversity.
Scottish Widows expects that animal welfare concerns to be taken seriously by businesses whose operations involve or depend on animals. We expect these organisations to recognise the widely adopted Five Freedoms of animals:
- Freedom from hunger and thirst, by ready access to water and a diet to maintain health and vigour.
- Freedom from discomfort, by providing an appropriate environment.
- Freedom from pain, injury and disease, by prevention or rapid diagnosis and treatment.
- Freedom to express normal behaviour, by providing sufficient space, proper facilities and appropriate company of the animal’s own kind.
- Freedom from fear and distress, by ensuring conditions and treatment, which avoid mental suffering.
We require relevant companies to take measures to reduce animal suffering to a minimum, and to ensure compliance with the Five Freedoms in their supply chain. Additionally, businesses that do tests involving animals should take all efforts to identify and implement alternative testing methodologies. This includes the pursuit of replacement, reduction and refinement opportunities, referred to as the 3R strategy.