At Scottish Widows, we are proud of our signatory status to the Financial Reporting Council’s (FRC) 2020 Stewardship Code. Our approach supports our climate action plan designed within the Paris Aligned Investment Initiative Net Zero Investment Framework (NZIF), and is based on three core pillars:
– Engagement with, and oversight of, investment managers
– Engagement with companies
– Engagement with industry and policy makers.
Through this approach we aim to consider stewardship through both a micro and macro lens, At a micro level, our engagement with investment managers and companies is a critical aspect of our policy. We expect all our investment managers to achieve signatory status with the UK 2020 Stewardship Code or their in-country equivalent. By 2024, our expectation is that all our Tier 2, as well as our Tier 3 managers, will be code signatories.
Owning our responsibility
As an asset owner, we recognise our power and responsibility to effect change. Our stewardship approach is an evolving policy, adapting to reflect emerging ESG risks and maximise impact.
In 2022, for example, we included human rights as a new social theme and broadened our environmental focus to add biodiversity and deforestation. Our engagement with investment managers, companies and industry, and our voting guidelines, cover all sub-themes of our extended policy, which are:
Climate and environment – climate remains a core focus for us. We recognise that a successful transition to net zero will support better outcomes for customers and society, and the risks and opportunities that climate change presents for companies and those that invest in them. It’s also an issue our customers care deeply about. Our focus includes making a Just Transition integral to engagement on climate.
We’ve also extended this focus to include biodiversity and deforestation. This recognises that nature degradation is one of the greatest threats we face.
Human rights – this is a new theme based on the United Nations Guiding Principles on Business and Human Rights. These cover human rights impacts, working conditions and decent, fair, or living wage compensation. Cognitive diversity on boards – we believe that diversity and inclusivity lead to better long-term value creation, and that cognitive diversity is a key element within that.
Driving positive change
For us, stewardship is about more than policy documents. It’s about putting words into action. Through engaging directly with investee companies, we are driving positive change. In 2023, for example, we engaged directly with Volkswagen after it was added to the 2022 list of United Nations Global Compact violators in relation to operations in its Chinese supply chain. Volkswagen was able to assure us that it had risk management processes in place.
We also engage with our appointed investment managers to embed our core themes to deepen our influence on voting.
This helps ensure our stewardship activity is aligned with and builds on the work of our investment managers. It also allows us to take a stand where we feel this is appropriate, even overriding decisions by our appointed investment managers.
In 2022, for example, we directed our vote in support of a special shareholder resolution for Sainsbury’s to commit to paying all its workers the living wage by July 2023. This went against how our investment manager voted.
Delivering better outcomes
In 2023, we directed a number of votes on management and shareholder resolutions in several of our top 300 holdings related to our stewardship policy. At a macro level, stewardship is about driving progress through industry-wide collaboration and policy advocacy. Our material collaborations include the Occupational Pensions Stewardship Council, Institutional Investors Group on Climate Change, UK Sustainable Investment and Finance Association, and the Association of British Insurers.
A key contribution has been in facilitating client-directed voting in pooled funds through the Department of Works & Pensions’ Taskforce on Pension Scheme Voting Implementation, and engagement with our managers. Partnerships and collaborations are key to supporting the greening of the real economy in a just way, and to driving effective regulation.
Please take a look at our most recent Responsible Investment and Stewardship Report – https://adviser.scottishwidows. co.uk/assets/literature/docs/61026.pdf.