How Scottish Widows is moving the dial on climate change

More details are emerging on how  Scottish Widows are helping to de-risk client portfolios of  ESG risks.

The implication is that State Street needed client pressure to make the move and this was given credence by David Lee, a former Scottish Widows and State Street investment manager.

This isn’t the first time that Scottish Widows (which doesn’t directly manage its client’s assets) has taken practical steps to reduce exposure to toxic assets and improve chances of meeting the challenge of the Paris Accord.

This is the headline from Citywire back in August

Scottish Widows diverts £2bn of pension monies to climate fund

Scottish Widows has allocated £2bn of pension savers’ default investments to a climate change fund.

And this is the response from some of the IFAs who read Citywire.

Let’s be clear, Scottish Widows manages investment platforms and not investments. As a platform manager it can influence the direction of investment by the deployment of client monies to appropriate fund managers. If advisers want to put up a credible argument against what Scottish Widows are doing, I would be happy to listen and publish their alternative proposals. But I suspect that they would be better reading the following article from Bloomberg and recognizing that the ship has sailed.

ESG investing is the most significant development in money management since the creation of the exchange-traded fund two decades ago and it will reshape finance just as passive funds have

That’s the finding of a new report from PwC that forecasts as much as 57% of mutual fund assets in Europe will be held in funds that consider environmental, social and governance factors by 2025, or 7.6 trillion euros ($8.9 trillion), up from 15.1% at the end of last year. In addition, 77% of institutional investors surveyed by PwC said they plan to stop buying non-ESG products within the next two years.

With racial and economic injustice, as well as climate change, becoming key societal issues in recent years, financial firms have been forced to pay greater attention to their own contributions to making the world fairer and greener. That has primarily manifested in an explosion of ESG funds with money managers of all stripes, from pension funds to private equity firms and hedge funds, hiring sustainability teams, rolling out new products and touting their green credentials.

“ESG is nothing less than an all-encompassing shift in the investment landscape; placing financial and non-financial performance criteria on a level playing field,” PwC said in the report published Monday.

ESG funds are proliferating in Europe because regulators and policy makers have made green issues a top policy priority and are creating a rulebook to ensure financial firms incorporate sustainability into their operations and root out so-called greenwashing. At the same time, growing public awareness of ESG-related risks — which has been accelerated by Covid-19 — and the emergence of a generation of investors who prioritize non-financial impacts alongside financial factors, has fueled the growth, according to PwC.

The performance of ESG funds relative to their traditional peers in recent months also has caught investors’ attention, said PwC. Fund managers from BlackRock Inc. to Allianz Global Investors and Invesco have said ESG portfolios outperformed during the Covid-19 sell-off.

“These catalysts are set to usher in the greatest shift the European asset and wealth management industry has ever undergone; presenting managers with the opportunity to drive change by playing a key role in mitigating climate risk,”

PwC forecasts ESG equity funds will see a compound annual growth rate of 26.8%, with assets quadrupling to more than 3.6 trillion euros by 2025. Bond funds will grow at a rate of 30.4% and assets will exceed 1.6 trillion euros in five years time.

The consulting firm’s report, which was published by its Luxembourg unit, also featured a survey of 200 asset managers, 300 institutional investors and more than 800 retail investors.

The study found that 37% of institutional investors are willing to pay a premium for ESG products, with the majority of them ready to pay between 21 basis points and 40 basis points extra. It also revealed that that while 77% of institutional investors plan to stop investing in traditional non-ESG compliant products within the next two years, only 14% of asset managers indicated plans to stop launching these products in the same time period.

PwC said Europe dominates the global ESG landscape, with the region’s 4,741 ESG mutual funds holding almost 70% of global ESG assets. And while PWC said it expects the impact of Europe’s green fervor to stretch beyond its borders as new requirements are imposed on non-E.U. companies and investors, U.S. asset managers face possible limits on green investing.

 


How this happens is down to us…

Individuals can make a difference to the way that money is invested. Georgia Stewart has shown how a young woman, fresh from college can influence the way that L&G gives a voice to its customers in the decisions taken in boardrooms that impact everyone. Maria Nazrova-Doyle is shifting the dial on billions of pounds of our money, making it matter more in combatting poor governance and ensuring it works for social and environmental good.

It was not long ago the Scottish Widows IGC was questioning whether such practices were in the interest of their clients but to me this is no time to continuing asking that question. The PWC research makes it clear that the times they are a changing.

Almost all of us save into workplace pensions and those workplace pensions are now required to take positions on climate change, social purpose and the underlying governance of the investments – whether made directly or through funds. This reporting is made to us savers through the Chair Statements of IGCs , GAAs and Trustees. Historically these have not been read (much). The next round of IGC statements are currently getting written and we can expect to see them in April. The chair statements of master trusts appear ad hoc throughout the year.

If you want to influence the debate, find out who is the Chair of your IGC or Master Trust and send in your thoughts as now is a good time to be heard. We may not all have the clout that Maria Nazrova-Doyle has, but Maria had no clout at all a few years ago and what she and Georgia Stewart and the ESG team at LGIM, is mightily to be commended. Making our Money Matter is a thrilling process and I hope more of us can follow in these bold young women’s footsteps.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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1 Response to How Scottish Widows is moving the dial on climate change

  1. Brian G says:

    Really good to see how scheme members with a collective and individual voice can start to influence how our money is invested. This is a very positive change. And if people choose to call it “woke” that is their business, but for me I see it as a welcome shift in sentiment being turned into action. For those who want to invest in things which might not help the future of the planet there are plenty of funds enabling them to do so. But for those who are automatically put into default funds I think it is positive to see action on how their money is invested.

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