Scottish Widows to remove £440m of investments in firms who fail ESG test

ESG stands for Environmental, Social and Governance and is an investment style that is quickly becoming a key consideration in the world of finance.

Engagement in ESG has been growing steadily, only to be exacerbated by the coronavirus pandemic, which has highlighted both a need and a desire for investors to use their money in a positive way. Whether it be combating climate change, prioritising social responsibility or ensuring companies are governed in a fair and sustainable way, investors are increasingly opting for ESG investment strategies. 

Rising demand for ESG investments has seen market standards increase, leading to many pension and investment providers beginning to take a stand against investment houses and fund managers that choose to ignore the 3 pillars of ESG.  

Scottish Widows scrutinises companies ESG standards 

One of the UKs largest pension providers, Scottish Widows, recently announced that they will strip £440 million of investments from firms failing to meet their ESG standards. Although Scottish Widows have not yet named any of the companies they are planning to divest from, they have announced their criteria: holdings in companies where more than 10% of revenue originates from thermal coal, tar sands, weapons manufacture; or violations of the UN Global Compact on human rights, labour, environment and corruption, will all be sold under the new policy. Scottish Widows will divest unless the size and type of their investment means they can drive a positive change in non-compliant business models. 

The decision comes following the introduction of Scottish Widows’ ESG policy, which launched in 2019. The new policy covers life, pension and investment funds and applies to those actively managed, as well as passive index-trackers. Both in-house and third-party managed funds will be under scrutiny.  

Legal & General to name and shame 

In a similar vein, Legal and General Investment Management (LGIM) have announced they will publicly name and shame 500 companies that they believe need to do more to tackle climate change. LGIM have created climate ratings for 1,000 companies that will be made publicly available. LGIM will then be writing to the 500 worst scoring companies, asking them to increase their efforts in fighting climate change with solutions such as setting net zero carbon emission targets. Failure to meet such targets would then see a potential sell out of the stocks by LGIM. 

Despite the difference in approach, the message is the same; responsible investment is crucial. Act now or face losing investors. ESG investing is important to us at TPO and we believe it is rather significant that companies with the market influence of Scottish Widows and LGIM are adopting this approach and raising awareness around ESG, implying that it is here to stay.  

How TPO is doing its part 

At TPO, we also aim to take the future of our planet and society seriously, so it is vital that we can offer an ESG approach that we are extremely proud of. In addition to our notable ESG portfolio range, 25% of TPO’s future value will be gifted to the environmental charity, Restore Our Planet, one mission of which is to plant a trillion trees in their bid to combat climate change.  

Encouragingly the industry is changing. As we see more and more investors demanding that companies comply with ESG practices, so we applaud firms such as Scottish Widows and LGIM that are making such a difference in promoting ESG investing and can only be optimistic that their competitors and peers follow suit.  We hope this is just the beginning of a big push towards positive-impact investing. 

If you would like to discuss how you could invest your money to make a positive impact, click here to speak to one of our independent financial advisers or click here to learn more about ESG investing by watching our recent webinar. 

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