Scottish Widows doubles ESG-related divestments

Scottish Widows has announced plans to divest a further £1.5bn in an update to its exclusions policy, including a commitment to divest from tobacco firms and tightened climate requirements.

Under the new policy, Scottish Widows will not invest in any company deriving more than 10 per cent of its revenue from tobacco, with this threshold meaning that all tobacco manufacturers and major distributers are excluded, without hampering investments in sectors that derive a small amount of revenue, such as supermarkets.

The provider explained that tobacco holdings pose an unrewarded investment risk and are irreconcilable with the group’s broader strategy as a responsible investor.

It also noted that tobacco companies are not even allowed to sign up to the UN Global Compact principles due to the products detrimental effect and concerns around child labour in the supply chain.

In addition to the tobacco divestment, the group announced plans to bolster its exclusionary stance on carbon-intensive industries, updating its exclusions policy to lower the threshold for extraction of thermal coal and tar sands from 10 per cent of revenue to 5 per cent.

This change in threshold aims to reflect the progress made by the leaders in the sector, who have been dramatically reducing their reliance on these highly pollutive fuels.

The updated policy builds on around £1.4bn worth of previous exclusions applied to Scottish Widows’ investments, bringing the total value of the provider’s exclusions to nearly £3bn.

The provider worked with FTSE Russell to construct a bespoke screened screened indices for its passive funds, managed by BlackRock, which covers both the tobacco and carbon exclusions, as well as existing screens from Scottish Widows’ policy.

Commenting on the plans, Scottish Widows head of pension investments and responsible investments, Maria Nazarova-Doyle, said: “With responsibility for trillions of pounds worth of investments, it is imperative that the pensions industry champions a responsible approach to investing, creating strong financial returns for savers with the help of active stewardship while divesting from practices that threaten the long-term health of people and our planet.

“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.

“We stand by our belief that carbon-intensive sources of energy such as thermal coal and tar sands will ultimately be replaced by greener renewable sources such as wind or solar. As such, exiting these highly damaging areas and redirecting capital to more climate-aware investments makes perfect investment sense.”

FTSE Russell CEO, Arne Staal, added: “FTSE Russell has seen huge growth in ESG investing over recent years, not just within the UK, but also globally, with pension funds increasingly using sustainable investment benchmarks as an effective way to both quantify and respond to the changing needs of their clients.

"FTSE Russell worked closely with Scottish Widows to ensure that their sustainability views were represented in the newly launched custom ESG screened indices - which will cover more than £20bn worth of assets under management.”

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