Responsible investment framework

As environmental, social and governance (ESG)* factors become better researched and understood, we believe it’s clear they can have a financial impact on investments. Our customers look to us to exercise our judgement on the most appropriate ways of investing over the long term. So we aim to address material financial risks and opportunities linked to ESG factors in the investments we make, and this is the foundation of our responsible investment framework.

We also recognise we can be most effective through collaboration and we continue to work with other organisations through being a signatory to the UN Principles of Responsible Investment and a member of the Institutional Investors Group on Climate Change**.

Lastly, it’s important to us that we practice what we preach, improving our own sustainability practices for the benefit of our customers and shareholders, and continue to build a future worth living in.


*What is ESG?

‘ESG’ stands for environmental, social, and governance. Certain factors within these three categories are used to inform decisions about the companies we invest in.

Environmental

Environmental issues not only have a measurable impact on the world we live in today – they can also impact the world we will live in tomorrow. They include climate change, conservation of natural resources such as water and timber; extraction of fossil fuels including coal, gas and oil; waste management and pollution. Environmental issues also relate to activities aimed at helping nations transition to a low-carbon economy such as renewable energy production or electric vehicle manufacturing.

Social

Social issues involve people - from a company’s workforce to its customers and suppliers and the people living and working near its operations. They include labour relations, workers’ rights and working conditions, slavery, child labour, workforce equality and diversity and health and safety. Social issues also concern the wider impact an organisation may have on communities at home or overseas and in areas where suppliers and partners operate.

Governance

Governance relates to the rules, practices and codes of behaviour that influence how a company or organisation is run. The quality of a company’s governance can have a big impact on its ability to succeed, prosper and survive. It involves people issues as well as strategic, financial and risk management issues. Important issues include selection and skill sets of board members, diversity of board and leadership teams, succession planning and executive pay. It also covers financial reporting, anti-fraud, bribery and corruption measures, data privacy and security, political lobbying and donations.

**Principles of Responsible Investment: United Nations-supported international network of investors which works together to put into practice Principles for incorporating ESG issues into investment.

Institutional Investors Group on Climate Change: The European body for collaboration between institutional investors on climate change.


Our responsible investment and stewardship framework

We’ve clearly defined how we invest responsibly for our customers to help them to help them plan long-term financial futures. This guides our decisions on the investments we make, the fund managers we select, our research into funds, and how we engage with companies we invest in.

We follow investment principles and stewardship guidelines which together govern our approach.

The primary principle is our commitment to being a responsible investor. We aim to avoid major risks associated with environmental, social and governance (ESG) factors which could adversely impact the performance of companies we invest in. We also seek to benefit from ESG investment opportunities.

Alongside this, we won’t invest in some companies at all. We recognise that removing all bad performers on ESG factors would mean we lose the opportunity to drive positive changes through engaging with those companies. So, we restrict our exclusions to companies involved in controversial activities like cluster munitions, landmines or chemical weapons, where engagement would make no difference.

Climate change is one of the biggest challenges facing us. Companies that fail to address issues like carbon emissions and water and energy waste could potentially underperform in future. So we look to invest in those companies which are adapting to a lower carbon world.

Currently, our responsible investment principles are applied to our equity (shares in companies) investments. Over time, we aim to extend them to other types of investments, like bonds. Our Responsible Investment Team is also working with government, regulators and the pensions industry to unlock opportunities to invest in the infrastructure required to successfully transition to a lower carbon economy, like renewable energy facilities.

What our customers have told us

We have conducted extensive research among our customers, and there are some clear learnings that stand out:

Returns

Our customers are clear that we should adapt and improve our investment strategy but only where it is beneficial for returns.

Expertise

Our customers have told us that they think that it's our job to make sure our investment strategy is up to date.

Priorities

53% agree that it's more important to avoid companies that are causing harm than invest in those doing good.

Approach to responsible investing

Explore our approach to responsible investing.