Scottish Widows divests from tobacco for ESG reasons, tightens exclusions policies for fossil fuels

Image: Scottish Widows

The savings, insurance and investment giant said in a statement that it has already moved to divest from companies that do not operate in line with the UN Global Compact principles. Yet, tobacco companies are not permitted to sign up to these principles.

The statement concludes that tobacco holdings should be “irreconcilable” with robust responsible investment strategies, due to the negative impacts of tobacco on human health and due to widespread challenges removing human rights abuses from the industry’s supply chain.

Tobacco supply chains can also bear heavy environmental impacts. According to Ash, Malawi has lost more than 40% of its forest cover since 1970, largely because land-use has been changed for tobacco farms. And, because tobacco is typically mono-cropped, this forces farmers to use chemicals to keep pests, weeds and fungal diseases at bay.

“Taking the long view, industries such as tobacco are at severe risk of becoming stranded assets, as they face intense pressure from investors, regulators, and consumers, and consistently fail to properly address the social impacts of their products and within their supply chain,” said Scottish Widows’ head of pension investments and responsible investments, Maria Nazarova-Doyle.

Scottish Widows is also updating its exclusions policy for fossil fuels today (28 March). Companies deriving 5% or more of their revenues from thermal coal mining or tar sands will now be excluded. Previously, the threshold was 10% of revenues.

Scottish Widows said in a statement that the new targets “reflect the progress made by the leaders in the sector who have been dramatically reducing their reliance on these highly pollutive fuels”.

Between tobacco, coal and tar sands, Scottish Widows is expecting to see £1.5bn worth of divestment. Building on other exclusions announced within the past year, the total level of divestment for the firm is now around the £3bn mark.

Net-zero aspirations

Last year, Scottish Widows, which manages funds totalling almost £190bn, has committed to halving financed emissions by 2030 on the pathway to net-zero.

Scottish Widows claims that, by investing “billions of pounds” in sectors like renewable energy generation, technologies that improve energy efficiency and low-carbon buildings, it can deliver the necessary decarbonisation. At the same time, it will continue to divest from companies that are lagging behind on environmental, social and governance (ESG) issues.

Beyond divestment and investment, Scottish Widows is planning to increase engagement with financed companies to encourage them to adopt lower-carbon technologies, systems and processes. It has not yet confirmed plans for carbon insetting or offsetting but claims these will be a smaller part of the puzzle. 

Late last year, Scottish Widows launched a new digital ‘Find Your Impact’ tool, which enables those using its workplace pension products to track how their investments are performing both financially and in terms of their environmental impact. 

According to Make My Money Matter, around two-thirds of the UK’s £2.7trn pensions sector is accounted for by providers that have not yet made “credible” net-zero commitments. This would indicate that the decisions taken by Scottish Widows are the exception, rather than the norm.

Sarah George