Scottish Widows is to divest nearly half a billion from companies that fail to meet its new environmental, social and governance standards.
The pensions and insurance giant announced today (November 9) it would pull at least £440m from firms held across its life, pension and open-ended funds as a fresh exclusions policy comes into play.
It warned this figure could grow much further if companies did not take action to improve the sustainability of their business practice.
Scottish Widows’s new exclusions policy targets companies that derive more than 10 per cent of their revenue from thermal coal and tar sands, manufacturers of controversial weapons and violators of the UN Global Compact on human rights, labour, environment and corruption.
If the size and type of investment means Scottish Widows can influence positive change in their business models, the insurer may choose to stay invested and steer future direction instead.
Maria Nazarova-Doyle, head of pension investments at Scottish Widows, said: “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.
“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.”
Scottish Widows said its new exclusions policy would benefit nearly 6m UK savers, including those in its workplace default funds and across all trackers as well as active portfolios.
As part of the policy, Scottish Widows is working with its strategic investment partners to apply the exclusions to the external pooled funds they manage.
Ms Nazarova-Doyle said the growth of “at risk” companies was likely to be severely limited by future regulations and the changing views of customers and investors, resulting in significant falls in their share price.
She added: “We recognise there’s more we can do as a company and that this is just one step in the journey. However, this underlines our commitment of becoming a market leader in responsible investment and to make a real difference.”
ESG investing has boomed in popularity in recent years as fears over climate change have led investors to consider the impact of their money and as a growing number of millennials have begun investing.
Recent data from the Investment Association shows inflows into ESG funds have quadrupled in 2020 so far, with £7.1bn invested in such funds over the first three quarters of this year compared to £1.9bn .
Proponents of ESG investing often argue that ESG risk is investment risk, as those firms that do not adhere to ESG standards are more likely to be unsustainable businesses.
This is the latest ESG push from Scottish Widows. Earlier this year, it collaborated with BlackRock to design the Climate Transition World Equity fund, a new portfolio dedicated to helping the transition to a low carbon economy.