Scottish Widows to divest £440m from companies lagging on environmental and social sustainability
Pensions provider Scottish Widows has outlined plans to divest at least £440m from companies that have failed to meet its ESG standards, in what is claims is the most far-reaching exclusions process in the sector.
The insurer’s new exclusions policy will help it to divest from companies which derive more than 10% of their revenues from thermal coal and tar sands – two of the most aggressive, high-carbon forms of fossil fuel extraction. Arms manufacturers and companies which have previously been proven to flout the UN’s requirements on human rights and the environment will also be dropped.
Scottish Widows has said it will only keep investing in companies with historically poor performance on ESG if it believes it can “influence positive change to their business models”.
These policies apply across all of the group’s life, pension and open-ended investment companies (OEICs), including its default funds. Despite an uptick in the offering of ‘sustainable’ thematic funds, more than 90% of individuals choose their scheme’s default fund.
Scottish Widows said in a statement that it sees ESG-related risks crystallising in the coming years and believes that more sustainable companies will perform better in the long-term.
“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,” Scottish Widows’ head of pension investments Maria Nazarova-Doyle said.
“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 growth of these ‘at risk’ companies is likely to be severely limited by future regulations and the changing views of customers and investors, leading to significant falls in their share prices.”
The proposals come as the Pensions Bill is progressing through Parliament. In its current form, the Bill’s main climate provision is a new mandate requiring large pension schemes to disclose the climate-related risks posed to assets in their portfolios by the end of 2022, in line with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD).
Pensions Minister Guy Opperman has repeatedly stated that he is opposed to a blanket requirement on divestment. While many of the UK’s large pension schemes, including Nest, have set stricter exclusions policies, Opperman wants to see Government-backed and private pensions funds working with businesses in their holdings to improve their climate plans.
“Holding such [high-carbon] assets places trustees in an influential position to nudge, cajole or vote firms towards lower-carbon business practices,” he wrote in a comment piece earlier this year.
“The tactic of simply selling them to others without the same environmental concerns is counterproductive.”
Nonetheless, public pressure for divestment is mounting, with groups like Extinction Rebellion and Make My Money Matter engaging individuals and organisations. Divestment processes have this year been confirmed by the Church of England and by several of the UK’s higher education bodies, including Oxford University, the University of Manchester, the University of Gloucestershire and the University of Cambridge.