Responsible Investing: What is “stewardship”?

Investments team
16 June 2021

Stewardship is a word that means taking care of something. It’s overseeing something on behalf of someone else, and acting in a way that keeps the owner’s best interests at heart.

When you entrust Scottish Widows with your savings to invest for your future, for example, we take stewardship of your investment – and so it is our duty to look after it with the utmost care. When it comes to investments, there may be short-term ups and downs in the markets from time to time. But our responsibility is to help your investment grow over time, while supporting long-term benefits for the economy, the environment, and society more broadly.

We set out a “Stewardship Policy” to explain how we go about this and to demonstrate our commitments to being responsible stewards of the customer investments we oversee. This policy refers to the investments we make in stocks (company shares). Our industry-leading stewardship encourages the companies we invest in to plan and grow their activities responsibly, protecting and maximising the value of our customers’ investments in the long term. As stewards of your savings, we will challenge, when necessary, the companies we invest in on your behalf to behave more sustainably and responsibly. (Talking directly to the senior management of companies is often referred to as “engagement”.) What’s more, we exercise strong governance over the fund managers we partner with to oversee the day-to-day operations of our investment funds.

Many of our customers are saving into pensions, and are focused on long-term savings goals (10 years or more).So we make sure that we also focus on the long-term risks and opportunities when it comes to investing in company shares. This means working closely with the fund managers we partner with, and engaging with the senior management of the companies we invest in, when we see an opportunity for improvement.


Stewardship in action

Here are two of our top goals for the next two years.

Climate & Carbon: In April 2016, the UK joined 173 other nations and the European Union in signing the Paris Agreement, which calls for each country to set out and report on policies to help combat global warming. These policies involve each country setting targets for carbon emissions. Over the long term, this will mean major changes in planning for the economy. The types of businesses that will do well in the future will be those that can adapt to new laws and targets such as “net zero”, which the UK is aiming for. So we are focusing first on those companies with the highest carbon emissions, and will engage with them when we think it necessary. But we also support those who have already started to evolve their business practices.

Board Diversity: Most companies have a Board of Directors that oversee how that company operates. We believe that having a broad range of people, with different ways of thinking, should be involved in companies’ decision-making at that level – we call this “cognitive diversity” and it includes many different kinds of diversity. Studies show that cognitive diversity on boards is associated with better financial results. We will engage with companies when we think they need to do better at having a broader range of people on their boards.


Voting

We’ve talked about engagement already, but another way we can help companies make positive changes is through voting. Most companies have meetings every year in which investors (such as Scottish Widows) can make their voices heard on a range of important topics about how the company is run. Usually, the fund managers we partner with will attend these meetings and vote. But in certain circumstances, we reserve the right to vote on matters that affect our Stewardship & Engagement Policies.

We take seriously our duty to be responsible stewards of our customers’ investments. We will join and support industry-wide work to change and influence policies that will help create a better future for us all.

Pensions are a long-term investment. The retirement benefit(s) you receive from your pension will depend on a number of factors including the value of your plan when you decide to take your benefit(s) which isn’t guaranteed and can go down as well as up. The value of your plan could fall below the amount(s) paid in.