Investing responsibly

ESG stands for Environmental, Social and Governance, which are three key factors that help investors measure the ethical and sustainability impact of a business or sector.

When looking at the first factor for example, an investor would examine what damage a company is doing to the environment. Is it causing pollution? If it’s a chemical company, does it have a history of leaks or spills? And does it clean up after itself? If it’s an oil or gas company, is it extracting as cleanly as possible? And what are its carbon capture plans or energy transition plans? How is it planning to change in future years? 

The social element involves finding out if a company is looking after people and not exploiting anyone. Does the company care for its employees, its suppliers, customers and the communities that it is involved with? For companies with employees and suppliers in developing countries, where employment law can be less formal, this is particularly important.

Governance is about how well companies are run. Do they follow all the legal and accounting requirements? Are they carrying out thorough audits, and do they have all the necessary checks and balances in place? What’s their attitude to company pay and executive bonuses? Do they always put their shareholders’ interests first? Are they as open with shareholders as possible?   

An investor who is ESG aware will want to know that these credentials are strong before investing.

We’re a long-term investor and we recognise the long-term challenges that climate change can have on our investments, business, our customers, and of course, the planet.

We know climate change is the challenge that will define our generation and we need to take action to carb global carbon emissions. You can find out more about how we're committed to tackling climate change.

Backed by the United Nations, the PRI are six principles that investors should follow if they want to create a more sustainable global financial system:

1. We will incorporate ESG issues into investment analysis and decision-making processes.
2. We will be active owners and incorporate ESG issues into our ownership policies and practices.
3. We will seek appropriate disclosure on ESG issues by the entities in which we invest.
4. We will promote acceptance and implementation of the Principles within the investment industry.
5. We will work together to enhance our effectiveness in implementing the Principles.
6. We will each report on our activities and progress towards implementing the Principles.

Royal London Asset Management (RLAM) signed up to the UN’s PRI in 2008, and we became signatories in January 2020.

The UK Stewardship Code 2020 is a substantial revision of the 2012 edition, and came into effect 1st January 2020. The code aims to improve the way investors and companies communicate and work together, setting out principles of good practice that the Financial Reporting Council (FRC) believes investors should aim for when engaging with companies.

We’re extremely proud to be awarded signatory status as an asset owner under the Financial Reporting Council's (FRC) UK Stewardship Code, building on the success of RLAM, which has held signatory status as an asset manager since 2021.

We exclude cluster munitions, anti-personnel landmines, and biological and chemical weapons based on guidance from the following international conventions and treaties:

• The Biological Weapons Convention 1975, prohibits the development, production and stockpiling of bacteriological (biological) and toxin weapons
• Anti-Personnel Mines Treaty 1997, also known as the Ottawa Convention, prohibits the use, stockpiling, production and transfer of anti-personnel mines
• The Chemical Weapons Convention 1997, prohibits the development, production, stockpiling and use of chemical weapons
• The Convention on Cluster Munitions 2008, prohibits the use, production, transfer and stockpiling of cluster munitions.

No fund will knowingly invest in corporate equity and/or debt involved in the manufacture and sale of cluster munitions, anti-personnel landmines, or biological and chemical weapons.

Our asset managers are required to disclose their voting policy and record to us, and we’ll use this information to make sure they’re keeping to our responsible investment policy.

We’ll include updates on our responsible investment activities in our annual report, which is presented to our Board, members and customers. Where possible, we’ll also disclose the voting records of our asset managers on our website.

Purposeful dialogue between investors and companies on environmental, social and governance (ESG) issues with the intention to influence (or identify the need to influence) company behaviour or improve disclosure.

Carbon neutrality refers to achieving net-zero carbon dioxide emissions. This can be done by balancing emissions of carbon dioxide with its removal through carbon offsetting or by eliminating emissions.

Conference of Parties and global United Nations summit about climate change and how countries are planning to tackle it. COP26 took place in Glasgow in November 2021.

The systemic and explicit inclusion of environmental, social and governance (ESG) factors into investment analysis and investment decisions.

Explicitly prohibits investing in a particular company, sector, business activity, country or region.

Investments made with the intention to generate positive, measurable social and environmental impact alongside financial return.

An unsubstantiated claim to deceive customers into believing that a company’s products are environmentally friendly.

This refers to the balance between the amount of greenhouse gas produced and the amount removed from the atmosphere. We reach net zero when the amount we add is no more than the amount taken away.

Using our rights as shareholders to vote at the Annual or Extraordinary General Meetings (AGM/EGMs) of the companies in which we invest, usually electronically.

Investing clients’ money in a responsible way, taking account of material environmental, social and governance (ESG) risks, and implementing our stewardship responsibilities.

The responsible allocation, management and oversight of capital to create long-term value for customers leading to long-term benefits for the economy, the environment and society. It is our fiduciary duty to be good stewards of our customers’ capital.

Meeting present needs, without compromising the ability of future generations to meet their needs.

An investment strategy which invests in companies that meet sustainability criteria or deliver sustainable outcomes through the products and services they provide and/or their business conduct.