L&G Ethical I Income (OEIC/Unit Trust)
SRI / Ethical Overview
The fund is a UK passive equity fund that aims to track the performance of a filtered index, based on the FTSE 350 Index, which excludes companies we consider to breach certain ethical criteria.
The fund has a higher weighting in telecoms, media, retail and financial services than the full FTSE 350 Index. This comes at the expense of the tobacco, defence and oil and gas sectors.
The fund uses the support of EIRIS, a specialist ethical research company, to establish benchmarking methodology for screening companies.
- Negative selection bias fund where their main 'ethical approach' is to avoid companies by using negative screening criteria.
- Limited/few ethical exclusions
SRI / themed / ethical assets under management – overview
- Fund Size (GBP): £326.0m (as at 31 May 2018).
- Total value of SRI/ethical/environmental/ social/ environmental or sustainability themed funds under management: £10.1bn. Source: LGIM internal data as at 31 December 2017
- Total value of assets covered by responsible ownership policy: The LGIM Corporate Governance and Responsible Investment Policy covers £983.3bn*, that being 100% of the firm’s assets under management.
- Total assets under management: £983.3bn* LGIM is one of Europe’s largest asset managers and a major global investor
Source *LGIM internal data as at 31 December 2017, including derivative positions and advisory assets. These figures include assets managed by LGIMA, an SEC Registered Investment Advisor.
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.
- Social policy Find fund options that consider social issues (e.g. human rights, labour standards, equal opportunities, child labour and adherence to internationally recognised codes such as the UN Global Compact). This will include funds in most of the different SRI Styles as this is considered a core issue. See fund information for detail.
- 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.
- 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.
- 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 companies with strong social policies Find funds that invest in line with positive strategies that relate to 'people' issues - such as having strong human rights, labour standards and equal opportunities practices. Such funds are likely to invest in companies that have market leading standards with regard to employee and supplier practices. Read fund literature for further information.
- Faith friendly Find funds that have attributes that commonly suit the aims of investors of faith - although they may not be specifically marketed as being only for religious investors. Strategies vary (as do investor aims). 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.
- 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.
- Responsible Ownership policy for non SRI funds Find funds run by fund managers that apply Responsible Ownership or 'Stewardship' policies to all or most of their investment assets. This means that active involvement (e.g. voting, dialogue) with the companies they invest in across funds (not normally limited to ethical or SRI options.) Read fund literature for further information.
- Integrates ESG factors into all/most fund research Find fund management companies that research environmental, social and governance (ESG) issues when deciding whether or not to invest in a company. This typically applies to all funds, not only those which are promoted as being 'ethical' or 'SRI themed'. This is increasingly often used as a risk management tool.
- 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.
- Responsible Ownership/ESG a key differentiator The fund managers have said they consider this area to be a key differentiator for their business
- 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
The fund’s investment objective is to provide growth by investing in a portfolio of companies in the FTSE 350 Index, whose business meets a range of ethical and environmental guidelines asset 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.
Fund guidelines for establishing eligible companies A company will be considered eligible unless it is involved in the following activities:
Animal Testing: 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.
Gambling: 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.
Human rights: A company with operations in at least five countries listed in EIRIS Category A.
Intensive farming: 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.
Nuclear power: 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.
Tobacco: 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
Investment trusts: 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 fund is managed by LGIM’s experienced Index team. Research is conducted by the portfolio managers within LGIM’s Index team. The team has full access to the research offered by other teams within LGIM, such as the economists and strategists as well the analysis and research provided by the Corporate Governance team. Research 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.
Furthermore, LGIM has a dedicated Corporate Governance team which is tasked to work with colleagues across the firm in order to support the incorporation of ESG into all of LGIM’s investment activity. The Corporate Governance team internally carry out industry and company research around ESG issues. External sources are used to support and complement this research process. This includes drawing on academic and NGO research, as well as sell-side broker reports. In addition, we have access to ESG-specific data and research.
Company meetings and site visits serve as a vital part of understanding ongoing and emerging issues that we need to be aware of when analysing companies’ fundamentals.
The Climate Impact Pledge is managed by LGIM’s corporate governance team.
Legal & General Investment Management Limited (‘the Firm’) claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared composite reports in compliance with the GIPS standards. The Firm has been independently verified, by PricewaterhouseCoopers LLP, for the periods 1 January 2006 to 31 December 2016. The verification report is available upon request. Verification assesses whether (1) The Firm has complied with all the composite construction requirements of the GIPS standards on a Firm-wide basis and (2) The Firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation. A complete list and description of all composites is available on request.
All GIPS composite reports are available on request.
For the purpose of GIPS compliance, the ‘Firm’ is defined as Legal & General Investment Management Limited and does not include assets managed by the SEC registered company, Legal & General Investment Management America.
This is not a consumer advertisement. It is intended for professional financial advisers and should not be relied upon by private investors or any other persons.
The views expressed within this document are those of Legal & General Investment Management, who may or may not have acted upon them. Legal & General Investment Management is authorised and regulated by the Financial Conduct Authority and is the Investment Adviser for the Legal & General Mixed Investment Fund Range.
Issued by Legal & General (Unit Trust Managers) Limited. This document should not be taken as an invitation to deal in Legal & General’s investments or any of the stated investments. Remember, the value of investments and any income taken may fall as well as rise and investors may get back less than they invest. Past performance is not a guide to future performance. Exchange rate changes may cause the value of any overseas investments to rise or fall. The Funds are sensitive to interest rate changes. An increase in medium to long-term interest rates is likely to reduce the value of your investment. The value of property is generally a matter of valuer’s opinion rather than fact. At times, especially over shorter timescales, lower risk rated funds may fall in value by more than higher risk rated funds. Details of the specific and general risks associated with the fund(s) mentioned are contained within the relevant Key Investor Information document. Call charges will vary.
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Legal & General Investment Management, One Coleman Street, London, EC2R 5AA. Authorised and regulated by the Financial Conduct Authority. This can be confirmed on the FCA Register at www.fca.gov.uk.
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