Royal London Sustainable Diversified (OEIC/Unit Trust)
SRI / Ethical Overview
RLAM’s investment philosophy is to take the principle of sustainability and apply it across different geographies and asset classes. We define sustainable investing as investing in companies that have a net positive benefit to society either through the products and services they offer or in the way they conduct their business. In doing this we support companies having a positive impact on society whilst at the same time growing investor capital.
Although the Trust adopts positive screening as its primary method of investment selection, it also offers reassurance from a number of areas of avoidance.
SRI / themed / ethical assets under management – overview
- Fund Size (GBP): £416.11m as of 31 May 2017.
- Total value of SRI/ethical/environmental/ social/ environmental or sustainability themed funds under management: £11,793.22m as of 31 May 2017.
- Total value of assets covered by responsible ownership policy: £1,416.04m as of 31 May 2017 (Please note that this figure only includes our sustainable range, however, RLAM’s Responsible Investment Policy will detail how this is an over-arching approach across most of the firm’s assets).
- Total assets under management: £104,507.32m as of 31 May 2017.
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.
- Governance policy Find fund options that have policies that relate to corporate governance issues such as board structure, executive remuneration, bribery and/or corporate corruption. These funds will typically avoid companies with poor practices.
- 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.
- Measures positive impacts Find funds that measure the positive effect of their investment decision making on society and/or the environment. (This may involve eg carbon saved or jobs supported.) Managers aim to quantify the benefits they deliver (relative to other strategies or other benchmarks) to ensure they are delivering positive benefiting. This is a new and evolving area. See fund literature for information
- Limits exposure to carbon intensive industries Find environmental, sustainable investment, ethical fund and other options that aim to significantly reduce or limit exposure to carbon intensive industries (ie sectors which are major contributors to climate change). Funds vary - strategies may involve excluding sectors such as coal, oil & gas, mining or airlines - or may indicate a 'best in sector' approach is taken. See fund literature for 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.
- Alcohol production excluded This filter helps you to find ethical funds - and other options - that avoid investment in alcohol production. See fund literature for further information.
- Fracking and tar sands excluded Find fund options that avoid companies involved in fracking and tar sands - which are widely regarded as more controversial methods of oil and gas extraction.
- Gambling avoidance policy Find ethical fund options (and other options) that avoid companies with significant involvement in the gambling industry. See fund policy for details.
- Pornography avoidance policy Find ethical fund option - and in some cases other options - that avoid companies that derive significant income from pornography. See fund details for further information.
- 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.
- Positive selection bias Find funds where their main 'ethical approach' is to invest in companies that are considered to be positive/good or useful to people and/or the environment. The fund may also have negative avoidance criteria - see fund details to read more about fund strategies.
- 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.
- Balances company 'pros and cons'/best in sector Find ethical funds and other options that consider both the 'positive' things companies do and the 'negative' things they do in order to make balanced, often complex decisions about where they might invest. Such funds often invest in the best/most ethical companies across most industries ('best in sector'), rather than excluding entire sectors. The fund manager may combine this with 'responsible engagement' activity to encourage better business practices. See fund literature for specific policy explanations.
- Over 50% large cap Find funds that invests more than half of their money into what are commonly regarded as 'large companies'. This will typically mean that the market capitalisation (or value) of the companies they hold is in excess of £5 to £10 billion.
- Sustainability themed Find funds where there is a significant emphasis on sustainability issues either as its primary strategy or as a core strategy that compliments other criteria. (This may apply to a number of different SRI Styles). Such funds will consider environmental and social issues when making stock selection decisions. Read fund literature for further information.
- Favours cleaner, greener companies Find funds that aim to nvest in companies with strong environmental policies and practices. This may mean it invests in smaller companies offering market leading environmental services or products and/or larger companies that are working towards the improved management of their negative impacts. Read fund literature for further information.
- Aims to generate positive impacts Find funds that aim to help deliver positive social or environmental impacts or outcomes through their investment decisions - which typically involves holding companies that are viewed as being necessary or beneficial. Strategies and approaches vary. A small number of funds have recently started to measure outcomes (see 'Measures Impacts' in the Policy filter). This is a new area - so most funds do not do this yet. See fund literature for further information.
- Available via an ISA Find funds that are available via a tax efficient ISA product wrapper
- ESG/SRI engagement Find funds and fund management companies that actively encourages higher 'environmental, social and governance' and/or 'sustainable and responsible investment' practices amongst investee companies - when positive change is aligned with the best interest of investors. This may apply to a single fund or a group of funds. Read fund literature for further information.
- Vote all* shares at AGMs/EGMs This fund manager votes or aims to vote all* the shares they own at Annual General Meetings and Extraordinary General Meetings. A commitment to voting shares is a key indicator of 'responsible share ownership' - where fund managers consider - and express their views on - the key business issues effecting the companies they part own. (*Allowance is made for exceptional situations such as when shares are in the process of being sold.)
- In house responsible ownership/voting expertise Find fund / fund management companies where there is in-house expertise that enables the fund manager to make their own decisions on issues such as shareholder voting, setting of in-house guidelines - for example - particularly with regard to environmental, social and governance (ESG) issues.
- UK Stewardship Code signatory Find fund managers that are signatories to the FRC UK Stewardship Code, which sets out a framework for constructive investor / investee relations where fund managers are encouraged to behave as responsible 'company owners'.
- Publish Responsible Ownership/Stewardship report Find fund management companies that publish information on their approach to responsible investment ownership - also known as 'Stewardship' - following the introduction of 'the Stewardship Code'. This sets out their approach to voting, dialogue with company management and any related activity. This is publicly available.
- Publish full voting record Find fund management companies that publishes a full record of how they vote at AGMs and EGMs. This information is publicly available.
- Regularly lead collaborative ESG initiatives Find funds managed by fund management companies that regularly initiate or help run industry wide (collaborative) investor projects aimed at raising environmental, social and governance standards amongst investee companies.
- PRI signatory Find fund management companies that have signed up to the UN backed 'Principles of Responsible Investment' initiative.
SRI / Ethical Policy
Although the Trust adopts positive screening as its primary method of investment selection, it also offers reassurance from a number of areas of avoidance. In particular the portfolio avoids investment in any company that is or is likely to be exposed to:
- Human rights abuses
- Tobacco and armaments manufacture
- Products which involve experiments on animals, except for those conducted for the benefit of human or animal health
- The generation of nuclear power
The Trust also avoids investments in companies which derive a material proportion (Over 10%) of their business from:
- Animal fur products
- Irresponsible gambling
- Irresponsible drinking
- Worker exploitation or exploitative consumer practices.
If a company breaches this threshold, then it is likely that that company’s involvement in that excluded sector is a noteworthy part of their business and strategy.
Also, this threshold is deemed to be realistic and appropriate in terms of assessing a company, given that it may not be possible to always pinpoint the exact turnover derived from an excluded activity. This threshold ensures that a minimum of 90% of each holding meets the ethical criteria.
Finally, the Trust avoids investments in companies that have unacceptable corporate governance and mismanage social, ethical and environmental risk.
Resources, Affiliations & Corporate Strategies
The core of our process is the team of five ESG investment specialists. Although each team member is capable of working across the spectrum of financial and ESG analysis required to enact our investment process, there are specialisms. We have two fund managers, one corporate governance specialist and two analysts capable of researching companies on a global basis across the spectrum of financial and ESG issues. The team has a high level of experience and have honed and improved the process over the 14 years since it was implemented. We have a very disciplined approach to investing, based around clear principles and a framework to ensure that that individually and as a team we make consistently high quality investment decisions on behalf of our clients.
An external advisory committee supplements this internal expertise. Not only do they provide external, independent oversight as to the adherence to the principles and ethos of the investment process, they are also invaluable in adding to the knowledge base, which exists internally. The advisory committee consists of members from the corporate, academic, investment and charities arenas.
We supplement this resource with the effective use of systems. Starting with a global universe of over 18,000 companies it is important we focus our work on those areas most likely to yield strong investment ideas. It particular we use MSCI to identity companies with strong ESG performance, and CSFB Holt to identify companies with inherent value creation and strong competitive advantage. Both these tools allow us to identify where and how best to use our internal resource. At this point we will conduct our own analysis as to the suitability of a potential investment.
It is worth emphasising that, whether primary inputs have been internally derived or otherwise, we will never delegate the final decision as to whether a security is selected in our portfolios, given our very different philosophical approach to valuation.