Responsible Investment

The shift we’re seeing

Issues such as climate change, cyber security and corporate governance are increasingly recognised as factors that can impact long term investment returns.

Customers are also being influenced by growing concern for the planet, and the impact that business activities are having on the environment. With this in mind, we’re making a stronger commitment to including these factors in our investment decisions.

 

The shift we're making

As the UK’s largest mutual insurance and pension provider, we’re committed to being a responsible investor.

This means we aim to generate good returns whilst also making a positive contribution to our society and environment. Good governance has always been important to us, but going forward, we’ll be more proactive in asking the asset managers we work with to include financially material environmental, social and governance (ESG) risks and opportunities when they make investment decisions.

We believe it can help to manage risk, support informed investment decisions, and help to generate better long-term results for our customers. Remember, past performance is not a guide to the future. Prices can fall as well as rise meaning you may not get back the full amount of capital originally invested. Investment returns may fluctuate and are not guaranteed.

We've also asked our asset managers to help us fulfil our stewardship responsibilities by working with the companies they invest in on our behalf to improve the way they're run - for example, by voting at shareholder meetings, meeting with company management, or pushing for higher industry standards.

Ultimately, we're committed to putting the three key Responsible Investment pillars into practice:

Ribbon representing stewardhsip and governance

Stewardship and voting

Megaphone representing advocacy and engagement

Advocacy and engagement

Chain link representing ESG integration

ESG integration

At Royal London we are committed to be a Responsible Investor.

And that means looking at the bigger picture.

We want to make sure that the companies we invest in have a positive impact on society

It’s about looking at Environmental, Social and Governance factors, or ‘ESG’ for short.

For example, we might look at a company’s position on environmental responsibility, cyber security, or boardroom diversity.

As part of this commitment, we’re asking all our asset managers to consider financially material ESG risks and opportunities when they make investment decisions.

And to be good stewards by voting and engaging with companies to improve the way they’re run.

We’ll only ever choose to work with asset managers who are already putting these principles into practice.

To us, Responsible Investing isn’t about choosing values over value - it’s about managing risk, making better investment decisions, and generating better long-term results for our customers.

How we practice Responsible Investment

We believe our asset managers are best placed to understand the importance and impact of ESG factors across our investments in order to help improve customer outcomes.

Our role is to pick the asset managers we believe are best aligned with our investment principles. We believe deciding not only how we invest but who we choose to work with puts us in the best position to do what’s right for our customers.

Responsible selection

Before we appoint an asset manager, we’ll carry out a responsible investment assessment at the screening stage to make sure they meet the best practice standards we have in place.

Appointment

We’ll make sure all our Responsible Investment principles are known to all our asset managers, and we’ll only choose to work with the ones who are already working on putting these principles into practice.

Monitoring and reporting

We’ll ask asset managers to provide regular updates and reports on their progress. If we find they’re not reaching the standards we expect, we may decide to stop working with them.

By end of 2020, we also aim to become signatories of the UN Principles for Responsible Investment (PRI), and the UK Stewardship Code set out by the Financial Reporting Council.

What this means for you

Ultimately, responsible investing is not about choosing values over value, but how we can integrate both to deliver long-term investment returns. Remember, past performance is not a guide to the future. Prices can fall as well as rise meaning you may not get back the full amount of capital originally invested. Investment returns may fluctuate and are not guaranteed.

By combining the skills of our asset managers and considering the ESG impacts of all our investments, we aim to provide better customer outcomes whilst working towards making businesses, society and the environment stronger for the future.

We’ll provide updates on our responsible investment activity in our Annual Report, and we’ll update our website with news on an ongoing basis.

Frequently Asked Questions

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 recognise the long-term challenges that climate change can have on our investments, business, our customers and of course the planet. To help us respond to these challenges, we’ve developed a climate change framework that outlines our beliefs and commitments that will help us manage climate change related risks and opportunities.

These 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.
     

Our sister company Royal London Asset Management (RLAM) signed up to the UN’s PRI in 2008, and we aim to become signatories by the end of 2020. We believe we have a responsibility to use our investing power to promote policy change and positive behaviour by companies, and that these principles will help us achieve this.

The UK Stewardship Code was published in July 2010, and it aims to improve the way investors and companies communicate and work together. The Code sets out principles of good practice that the Financial Reporting Council (FRC) believes investors should aim for when engaging with companies.

We aim to become a signatory by the end of 2020. Our sister company RLAM is fully supportive of the Stewardship Code, and complies with its seven principles

We’re committed to excluding specific categories that go against our responsible investment principles by the end of 2020, specifically Landmines and Cluster Munitions.

Choosing not to invest in a particular company or sector is known as an exclusion, and we expect all our asset managers to apply these exclusions on our behalf. We’ll monitor them to make sure this is happening, and if it’s not, we’ll ask them to explain why. If their exclusion policies are not in line with ours, we’ll make that clear to customers while also asking the asset manager to revise their strategy. If necessary, we may decide to stop working with them altogether.

Divestment is the opposite of investment, meaning an asset manager will take money out of a fund. If an existing investment goes against our responsible investment and/or climate change policies and we’ve exhausted all our engagement and advocacy, we may decide to stop investing with them altogether. We expect our asset managers to have a divestment criteria and process in place, and be able to evidence this if asked.

It’s possible we may put more exclusions in place in the future, and any proposals for additional exclusions will be reviewed by our Board before having further assessment by our investment teams.

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.