Responsible Investing: What is an “exclusion policy”?

Investments team
16 June 2021

Being a “responsible investor” means two things to us. First, we have a duty to deliver good investment outcomes for our customers. Second, we should do this in a way that is sustainable and uses our influence to help make a better future for everyone. Part of this means not investing in specific companies or types of industries if they’re involved in certain activities. That is why we developed an “exclusion policy” to set out our policy on what we won’t invest in as responsible investors.

Whenever possible, we would rather talk to the senior management of a company if we believe it needs to improve its performance on environmental, social and governance (ESG) factors. If we simply exclude companies from our investment portfolios without doing this, we would lose the chance to make a positive change by using our influence, and potentially any investment gains as well.

But there are some companies involved in activities that have such a negative impact on the planet and society that they pose an investment risk – that is, they wouldn’t make good investments. As more laws and regulations are passed in the next few years (to protect the environment, for example) these companies could be hit with large fines, increased costs, or fall out of favour with both investors and the public. This would limit their ability to succeed as a business, which would then probably lead to significant falls in their share prices. So these companies are the focus of our exclusions policy.

What sorts of companies or businesses are on our Exclusions list? Here are some examples.

Following international standards

The first is any company that doesn’t meet the standards of the United Nations Global Compact (which is the part of the Universal Declaration of Human Rights that covers the business world). We won’t invest in manufacturers of controversial weapons that are prohibited by international conventions, such as anti-personnel landmines, cluster munitions, and chemical and biological weapons. We also follow international guidelines on human rights, labour practices, the environment, and corruption.

Considering climate risk

Countries across the world, including the UK, have been working towards limiting global warming by reducing carbon emissions, as set out in the Paris Agreement of December 2015. We believe that companies that fail to change the way they do business and produce less carbon will not make good investments for our customers. Our position as a large investor allows us to lobby for positive change in the companies we invest in. So we don’t exclude all high carbon-emitting businesses, or every business in a high-carbon-emitting industry. Instead, we focus on excluding individual companies that we believe pose the most significant risks.

For the funds that we design and oversee, we specify the aims of the funds and how they are to be managed. The fund managers must comply with our policy and monitor our exclusions list.

The exclusion policy is part of our Responsible Investment Framework. We think it’s in the best interest of our customers, and helps us protect their savings from the future risks.

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.