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While the concepts of ESG or environmental, social and governance investing are certainly not new, in 2019 they seemed to take on greater importance than ever before. Driven by an increasing focus on the effects of climate change, the UK government for the first time declared a climate emergency. At the same time, sustainable investing has become a key issue for regulators, new ESG funds and indices are cropping up at a record pace, and more than half of individual investors around the world say they think their choice of investments can make a real impact on the world. What’s perhaps most interesting for us from an investment standpoint, however, is the growing body of evidence that ESG investing and robust returns are not mutually exclusive. As our strategic partners from Schroders point out in an interview in this issue, taking ESG factors into account is “simply good fund management.”
But how did we get here? From the roots of “socially responsible investing” – ethical tilts where lower returns were generally accepted as a given – we are now at a point in the ESG evolution where we’re able to articulate and quantify how sustainability makes good business sense. Our first article looks back at the origins of ESG and the strengthening relationship between good governance and good returns.
We always hope with this publication to give you some useful talking points to use with your clients, and this is no exception. In fact, advisers will be under increasing pressure (from regulators and clients) to include ESG considerations in suitability assessments and client discussions. Our second article examines why advisers should be talking to clients about sustainable investing and how to go about it.
Of course, as one of the UK’s largest pension providers, we’re keenly aware of the implications of ESG for default funds. As our third article highlights, about 90% of workplace scheme members elect to stay within the default funds chosen by the sponsoring employer or scheme consultant. In a very real way, the sustainable investment decisions being made today by pension providers for such default funds will have a significant impact on the financial future of close to 17 million UK workers.
Finally, we have a Q&A with the managers of two of our funds, both from Schroders: Andy Simpson, manager of the Scottish Widows Ethical Fund, and Matthew Bennison, manager of the Scottish Widows Environmental Fund. Andy and Matt sat down with us to discuss their ESG screening process and address the issue of whether companies with higher ESG scores can offer comparable – or even better – returns over the long term.
Scottish Widows Investment Director
AS ONE OF THE UK’S LARGEST PENSION PROVIDERS, WE’RE KEENLY AWARE OF THE IMPLICATIONS OF ESG FOR DEFAULT FUNDS