UK-based life insurance and pensions company Scottish Widows is divesting at least £440 million ($583.9 million) from companies that it says have failed to live up to its environmental, social, and governance (ESG) standards, and warned that it will divest even more if companies don’t improve the sustainability of their business.
Scottish Widows, which has approximately £170 billion in assets under management (AUM), said it is working with its fund manager partners to begin divesting from companies with the highest investment risk based on their business practices.
The insurance and pension provider’s new exclusions policy takes aim at companies that earn more than 10% of their revenue from thermal coal and tar sands, manufacturers of controversial weapons, and violators of the UN Global Compact on human rights, which consists of 10 principles guiding corporate behavior on human rights, labor, environment, and corruption. The policy applies unless the size and type of investment means that Scottish Widows can influence change in the offending companies’ business models.
“As a large institutional investor, we have a vital role to play in shielding our customers from ESG investment risks, as well as influencing positive change through the investments we hold,” Maria Nazarova-Doyle, Scottish Widows’ head of pension investments, said in a statement. “Our exclusions focus on companies we believe pose the most severe investment risk due to the nature of their businesses, which can’t be addressed through engagement.”
The company said the exclusions will be applied across its life, pension, and open-ended investment company funds, including its flagship workplace default investment options. It will also be applied to index trackers and its own active funds.
Nazarova-Doyle said the growth of what she termed “at-risk companies” that are targeted for exclusion will likely be “severely limited by future regulations and the changing views of customers and investors, leading to significant falls in their share prices.”
As part of the policy, Scottish Widows said it is working with its strategic investment partners to apply the exclusions to the external pooled funds it manages on behalf of a broad range of institutions.
“We recognize there’s more we can do as a company and that this is just one step in the journey,” Nazarova-Doyle said. “However, this underlines our commitment of becoming a market leader in responsible investment and to make a real difference.”
In August, Scottish Widows became the first investor in BlackRock’s newly launched Authorised Contractual Scheme Climate Transition World Equity Fund, allocating £2 billion of its pension portfolios to the fund, which it also helped design. The fund backs businesses that decrease carbon emissions, increase clean technology revenue, and display more efficient water and waste management. The fund also makes significant ESG exclusions.