L&G Ethical Inc (OEIC/Unit Trust)
SRI / Ethical Overview
The L&G Ethical Trust is a UK passive equity fund, which excludes FTSE 350 listed companies that engage in unethical practices based on objective criteria. The fund uses the support of EIRIS, a specialist ethical research company, to establish benchmarking methodology for screening companies.
SRI Policies (Primary strategy in bold)
- Environmental policy Find investment funds with environmental policies - ie that consider issues such as pollution, climate change, resource management, environmental impact. This will include options from all of the different SRI Styles, including funds where their core strategy is to focus on other areas such as ethical funds. See fund information for fund specific policy details.
- Ethical policies Find funds with 'traditional' ethical investment policies. These typically focus on avoiding companies that are involved in the armaments industry, tobacco, gambling and/or pornography. Options will include funds where their core strategy or style may be to focus other issues - like sustainability or the environment, not just 'ethical funds'. Strategies vary significantly. Check fund literature for details.
- Sustainability policy Find fund options that consider issues relating to the sustainability agenda (e.g. resource management, environmental impact, climate change and/or social issues such as equal opportunities, human rights and adherence to recognised codes). This will include funds from all of the different SRI Styles. See fund information for explanations of the different strategies.
- Animal welfare policy Find ethical fund options that have policies that require specific animal welfare standards to be adopted by investee companies in order for them to be considered for inclusion within the fund.
- Animal testing exclusion policy Find ethical investment options that avoid companies that are involved in testing their products on animals. Ethical fund strategies vary - some exclude all companies that test on animals, others allow companies that test for medical purposes or where required by law. Read fund details for fund specific information.
- Tobacco production avoided Find fund options that exclude manufacturers of tobacco (or related) products. This typically relates to ethical funds however funds from other SRI Styles commonly avoid this area also. Strategies vary and funds may invest in retailers of such products (e.g. supermarkets or hotels.) See fund information for further information.
- Armaments manufacturers avoided Find ethical fund (and other SRI) options that avoid avoids companies that manufacture products intended specifically for military use. Fund strategies vary - particularly with regard to non strategic military products. Read fund literature for specific details.
- Nuclear exclusion policy Find ethical funds (and other options) that have a published policy that sets out the fund's position on avoiding or limiting exposure to nuclear power. See fund literature for details of their policy.
- Human rights Find funds that consider human rights practices when approving companies for investment. Such funds will require decent standards of human rights to be demonstrated - which typically means adherence to international norms as a minimum standard.
- Negative selection bias Find funds where their main 'ethical approach' is to avoid companies by using negative screening criteria. Read fund literature for further information.
- *Limited/few ethical exclusions Funds with this label tend to avoid fewer companies than other ethical funds or other options with avoidance criteria. Strategies vary. The fund may only avoid companies in one or two areas (eg only exclude tobacco or armaments companies) or they may exclude only the very worst companies when measured against internationally accepted standards (across potentially a range of areas). Read fund literature for further information.
SRI / Ethical Policy
The fund’s investment objective is to secure capital growth from a portfolio of securities for companies whose business conforms to a range of ethical and environmental guidelines set out below.
To apply these criteria we enlisted the support of EIRIS, a specialist ethical research company. Using their established benchmarking methodology for screening companies, we have established an objective basis for including or excluding companies from our ethical portfolio.
Legal & General Ethical Trust guidelines for establishing eligible companies
A company will be considered eligible unless it is involved in the following activities:
A company which has tested (or not disclosed otherwise) its cosmetics products on animals in the last five years, or since it had a fixed cut-off date policy. Or which has tested (or not disclosed otherwise) its cosmetic intermediates on animals in the last five years.
A company which derives more than 10% of its reported annual turnover from gambling.
Health and safety convictions
Where any part of the company has been convicted following Health and Safety Executive prosecutions more than once in the last three years.
A company with operations in at least five countries listed in EIRIS Category A.
A company which derives any turnover from intensive pig or poultry farming.
Military – nature of involvement
- where its products or services constitute the whole of a weapons system;
- where its products or services constitute strategic parts for, or the whole of, a nuclear weapons system;
- which supplies strategic services for nuclear bases;
- which is a major producer with military sales activities in specific countries.
A company that owns or operate nuclear power stations.
Ozone depleting chemicals
A company that manufactures or supplies any ozone depleting chemicals.
- which publishes, prints or wholesales pornographic magazines or newspapers.
- which distributes ‘cut 18 certificate’ films or videos.
A company which derives more than 10% of its reported annual turnover from the production or sale of tobacco or tobacco products.
A company which:
- EIRIS has identified as having an annual usage of over 100,000 cubic metres of timber with no or limited evidence of sustainable timber sourcing standards; which has not addressed allegations of involvement in the extraction, processing, use or retail of uncertified high risk timber species in the last three years;
- has not addressed allegations of involvement in the extraction, processing, use or retail of timber from High Conservation Value Forests in the last three years; which has not addressed allegations of involvement in the extraction, processing, use or retail of illegally logged timber in the last three years.
- which has breached a discharge consent for a Red List substance during the last three years;
- have exceeded their discharge consents more than ten times in the last year
All Investment Trusts that form part of the FTSE 350 are also excluded as their investment objectives may include companies that fail to meet our criteria.
FTSE 350 Index
The maximum holding allowed of any one share is 10% of the value of the fund. Where any company makes up more than 10% of the filtered FTSE 350 Index, the accuracy of the tracking of the Index will be affected.
Resources, Affiliations & Corporate Strategies
The majority of research is carried out in-house. We receive research from external sources, including from major investment bank index research teams. The fund uses the support of EIRIS, a specialist ethical research company, to establish benchmarking methodology for screening companies.
Research is an integral part of our portfolio management process and is performed on an ongoing basis to capture all elements that could affect the risk profile of benchmark indices. It is, therefore, most effective if it is carried out by the same professionals who are involved in managing portfolios as they have a thorough knowledge of index products and market conditions.
Day-to-day portfolio management involves monitoring of the portfolio against the benchmark index, management of cash flow (including accruals) and implementation of changes to the index are carried out by the Index Funds team. The team operates in a collegiate manner sharing responsibility for all portfolios managed. As at June 2015 LGIM’s Index Funds team consists of 30 investment professionals with an average industry experience of 14 years.
The fund is assigned a lead fund manager and a secondary fund manager who are both accountable for the performance of the fund. The strategy for the implementation of major index changes is discussed and approved by senior directors within the Index Funds team.