Scottish Widows will divest from any company which derives more than 10 per cent of its revenue from tobacco, in an expansion to its exclusions policy.
The group announced today (March 28) that it will divest £1.5bn as part of the updated policy.
Scottish Widows said that the 10 per cent threshold will mean that all tobacco manufacturers and major distributors will be excluded from its investment holdings, without hampering exposure to other companies that may derive a small amount of revenue from tobacco, such as supermarkets.
The group said tobacco holdings are irreconcilable with its strategy as a responsible investor and pension provider, and that they pose an unrewarded investment risk.
The company said tobacco companies cannot sign up to the UN global compact principles given their products’ detrimental impact on households, economies and taxpayers, as well as concerns over child labour in the industry’s supply chain.
Scottish Widows is also changing its exclusions policy regarding investment in companies that derive profits from the extraction of thermal coal and tar sands. It will now divest from firms that receive 5 per cent or more of revenue from these activities, instead of 10 per cent.
As part of these changes, the company has created a range of screened indices for its passive funds, which will be managed by Blackrock.
The group looks after £109bn in savings and investments for six million customers in the UK.
Maria Nazarova-Doyle, head of pension investments and responsible investments at Scottish Widows, 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 the 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," she added.
She said the company stands by its 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.”
Last year, Scottish Widows committed to reach net zero across its £170bn investments portfolio by 2050 and halve its carbon footprint by 2030.
It also said it would invest billions of pounds in climate solutions, such as renewable energy, low carbon buildings, and energy efficient technologies, by 2025.