Values-based investing

Transcription

1 Values-based investing

2 Contents 01 Why choose values-based investing? 02 Our range of values-based investment funds 05 Actively managed funds from Standard Life Investments and Columbia Threadneedle Investments 10 Passively managed funds from Vanguard and HSBC You can match your investments to your values Values-based investing means you invest in companies and funds aligned to your values social, environmental or religious. There are many reasons to consider values-based investment and lots of choice when you do. Today s choice of values-based investment funds means you can make financial decisions that support your values and morals without sacrificing investment returns. Amanda Young, Head of Responsible Investment, Standard Life Investments In these pages, we refer to Standard Life Investments Limited as Standard Life Investments.

3 Why choose values-based investing? To have a say in the issues that affect us all We ve all seen what irresponsible company behaviour can do to us personally, our communities, environment and markets. But you have a choice a powerful way to have your say in these issues. Today s variety of values-based investment funds means you can choose to invest in companies that are committed to doing what s right for society and the environment. It means finding good investment opportunities Standard Life Investments believe that astute companies recognise that contributing positively to employees, the community and society means they can be better placed for future growth. On the other hand, those companies that pay no regard to their impacts risk harming both their reputation and ability to generate long-term investor returns. As people begin to choose to invest in those companies that are committed to doing what s right for society, the long-term potential of such investments improves. Lesley Duncan, Manager of the Standard Life Investments UK Ethical Fund You have lots of options Today, there s lots of choice when it comes to finding a fund that follows values-based criteria. Some funds are called ethical or green funds, others are classed as socially responsible investment funds (often called SRI or sustainable). And there are ESG environmental, social and governance funds. Ethical funds tend to screen companies in or out depending on their industry activities. A socially responsible fund may be more concerned with a company s contribution to employee welfare and the society in which it operates. And some funds focus on a mix of screening criteria and encouraging positive corporate behaviour. Investing so that you choose profit with purpose helps you align your money to your values. Julie Hutchison, Head of Customer Affairs, Standard Life Values-based investing 01

4 Our range of values-based investment funds We offer you a choice of funds to suit your individual financial objectives and your personal values. Our range of values-based investment funds includes both active and passive funds, and a Shariah (Islamic law) compliant fund. Our active funds are managed by Standard Life Investments. It believes that companies can be a positive force for change on the environment and society as a whole. It dedicates significant time and resource to its ethical investment policies and fully understanding the practices of the companies it invests in. We also offer a UK social bond fund which was developed by Big Issue Invest in partnership with Columbia Threadneedle Investments. The fund provides finance to organisations and projects that support more balanced economic development and job creation in the UK. Our passive funds are provided by selected external managers Vanguard and HSBC. These managers have designed passive funds which offer broad market coverage but exclude investments which don t meet specific socially responsible or religious principles. This is an introduction to the philosophy and strict criteria behind our range of funds. You ll find links to the fund factsheets in the summary table below. Other values-based investment funds are available through our DIY option ISA and Self Invested Personal Pension. Actively managed funds An actively managed fund is one where a fund manager tries to perform better than particular markets, benchmarks, or other funds of a similar type. The manager will try to achieve this by choosing which investments to hold and in what proportions. This means while the fund can outperform, as returns aren t guaranteed, it can also underperform. Standard Life Ethical Pension Fund (Pension) Read the pension factsheet SL SLI Ethical Corporate Bond Pension Fund (Pension and ISA) Read the pension factsheet Read the ISA factsheet SL SLI European Ethical Equity Fund (Pension and ISA) Read the pension factsheet Read the ISA factsheet Passively managed funds A passively managed fund aims, before charges, to match the performance of a benchmark rather than beat it. Its fund manager normally aims to do this by investing in the same shares as the benchmark, or a representative subset. You may also see passive funds called tracker or indextracking funds. SL Vanguard SRI European Stock Pension Fund (Pension) Read the pension fund factsheet Read the underlying fund manager factsheet SL Vanguard SRI Global Stock Pension Fund (Pension) Read the pension fund factsheet Read the underlying fund manager factsheet SL HSBC Amanah Global Equity Index Pension Fund (Pension) Read the pension fund factsheet Read the underlying fund manager factsheet SL SLI UK Ethical Fund (Pension and ISA) Read the pension factsheet Read the ISA factsheet SL Threadneedle UK Social Bond Fund Read the pension factsheet Read the ISA factsheet Fund prices and performance Access fund performance and factsheets using our fund filter tool The value of investments within the funds can fall as well as rise and is not guaranteed you may get back less that what they paid in. The funds may use derivatives for the purposes of efficient portfolio management, reduction of risk or to meet their investment objectives if this is permitted and appropriate. The sterling value of overseas assets held in the fund may rise and fall as a result of exchange rate fluctutations. 02 Values-based investing

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6 With increased media scrutiny and a greater access to information, how companies operate and the impact they have on their customers, employees and the communities in which they operate is under the spotlight. Companies can no longer operate in isolation. As customers become ever more conscious, they want to align their investments with their own personal beliefs and values. Amanda Young, Head of Responsible Investment, Standard Life Investments 04 Values-based investing

7 Actively managed values-based investment funds Managed by Standard Life Investments Promoting positive change Companies face new environmental and social challenges every day. Those managing money on behalf of socially responsible investors need to stay on top of these changes. Standard Life Investments knows that investors want to invest with conviction. That s why it dedicates significant time and resources to formulating ethical investment policies and fully understanding the practices of the companies it invests in. Standard Life Investments believes that companies concerned about the long-term interests of their shareholders should consider the impact of their actions. It believes that companies can be a positive force for change on the environment and society as a whole including their employees, suppliers and customers. Following a strict investment criteria Standard Life Investments values-based investment funds have positive and negative criteria. Socially responsible investment and ethical specialists ensure these criteria are met. The Responsible Investment Team Works closely with all the companies Standard Life Investments invests in to promote best practice standards. Positive criteria Standard Life Investments is committed to investing in companies that make a positive contribution to the environment and society. For instance, this might mean investing in companies which develop renewable energy or companies providing good employee training and development opportunities. To assess the positive criteria of companies, Standard Life Investments uses internal and external resources to rate companies against their reporting and commitment to environmental and social issues. In addition, it seeks companies that: promote sound employment practices promote products and services that benefit the environment or human life have strong community activities have clear policies on anti-corruption have good principles of business behaviour and ethics. The Ethical Funds Advisory Group Ensures ethical policy accurately reflects the views of ethical investors and is followed across Standard Life Investments range of ethical funds. Standard Life Investments Responsible Investment Team was voted the No 1 team in the Extel 2015 Award for Leading UK Asset Management firm for SRI/ESG. Our own ethical investors show an increasing preference for positive factors. In our 2015* survey seven of the top ten criteria were positive criteria. In particular, our investors deem high standards of business ethics and human rights to be the most important criteria. Amanda Young, Head of Responsible Investments, Standard Life Investments *Standard Life Investments conducts an annual survey of ethical investor sentiment. The most recent survey was conducted in the second quarter of Values-based investing 05

8 Negative criteria Standard Life Investments identifies companies involved in activities which are considered to be unethical or harmful to the environment and society. Its ethical funds will exclude companies that: damage or have a harmful effect on the environment and its inhabitants do not adequately address climate change market breast milk substitutes without any commitment to adopting the Code of Marketing Breast Milk Substitutes manufacture products or ingredients that have been tested on animals carry out genetic engineering of crops or animals use intensive farming methods sell fur products operate in countries that violate the political and civil rights of their people and have failed to address human rights properly process nuclear power, including owning or operating power stations publish or distribute pornographic material or adult entertainment services produce or sell weapons produce alcohol manufacture tobacco products are involved in gambling. 06 Values-based investing

9 Active engagement Standard Life Investments regularly engages with the companies it invests in. This valuable dialogue is key to the suitability and success of its values-based investment funds. Engagement is based on the four pillars of the UN Global Compact: human rights labour environment anti-corruption. You can find out more about these pillars at: Standard Life Investments focuses on a variety of environmental and social issues to ensure companies meet high standards of corporate responsibility. It encourages companies, where necessary, to improve their corporate behaviour. Listening to investors Standard Life Investments recognises investors concerns and reflects these in the way it invests. By actively asking its investors opinions, the company can ensure that what matters most to their customers is at the forefront of its values-based investment strategies. It s one of the only ethical fund providers to carry out an annual survey of ethical investor sentiment. Over the past 10 years, business ethics and corporate governance have grown in importance for Standard Life Investments ethical investors. While avoiding certain activities still remains important, how companies operate and behave is now a priority to its investors. By using constructive engagement, it s able to contribute to the development of principles and standards of corporate responsibility and regularly reports on its engagement activities. Our recent surveys * show that engagement to drive better corporate behaviour remains essential among investors with little tolerance if engagement practices fail. Amanda Young, Head of Responsible Investments, Standard Life Investments You can find out more about the policies Standard Life Investments promote and its approach to active engagement, including its regular reports, on the website. Just go to and select responsible investment, how we evaluate companies or our engagement approach. * Standard Life Investments conducts an annual survey of ethical investor sentiment. The most recent survey was conducted in the second quarter of Values-based investing 07

10 SL Threadneedle UK Social Bond Fund In partnership with Columbia Threadneedle Investments, Big Issue Invest developed this fund to extend and support its mission to prevent and dismantle poverty and inequality. Big Issue Invest invests directly in socially-driven businesses that aim to create positive social outcomes in local communities. The SL Threadneedle UK Social Bond Fund supports this mission by providing finance to organisations and projects that support more balanced economic development and job creation in the UK. The fund aims to provide both income and the potential to grow the amount you invested. At least two-thirds of the assets of the Fund will be in bonds that are issued in the UK. These will be issued by companies, governments, voluntary organisations and/ or charities that engage in socially beneficial activities and development. Investment is targeted to deliver social outcomes in eight areas: affordable housing education employment and training health and social care financial inclusion community services transport and communication infrastructure utilities and the environment. How are the investments assessed? Big Issue Invest developed a unique Social Assessment Methodology for the Fund, with input from Columbia Threadneedle Investments Governance and Responsible Investment (GRI) Team. Each investment is evaluated according to this methodology, and given a ranking based on the intensity of social outcome. The Methodology provides filters for portfolio investment decisions that maximise the social performance of the Fund so investment is targeted to people and places with the greatest social need. You can find out more about this three-step process in Columbia Threadneedle Investments brochure. About Big Issue Invest The Big Issue magazine was established 23 years ago as a business solution to the social crisis of homelessness it enables vendors to earn a living by selling a magazine on the street. The core philosophy of The Big Issue is about self-help offering a hand up, not a hand out. In 2005, The Big Issue launched Big Issue Invest (BII) as its social investment arm. Its mission is to help tackle poverty and inequality by providing finance to sociallydriven businesses focused on tackling the UK s most pressing social problems. To date, BII has raised and invested over 25 million in more than 300 social enterprises, charities and community organisations. This has helped improve the lives of 1.8 million people in Britain s most disadvantaged communities. 08 Values-based investing

11 Threadneedle UK Social Bond Fund Charity Times Better Society Award for Ethical Investment Fund of the Year 2015 Values-based investing 09

12 Passively managed values-based investment funds Vanguard and HSBC have designed passive funds that offer broad market coverage but exclude investments which don t meet specific socially responsible or religious principles. Managed by Vanguard Vanguard uses an investment process which aims to track a standard benchmark index, while excluding from its funds investments that don t satisfy socially responsible criteria. Vanguard uses sophisticated investment techniques to keep the funds characteristics in line with those of the overall benchmark. Vanguard aims to deliver the performance of the non SRI index while adhering to the SRI policy of not investing in those companies which don t meet the SRI criteria of FTSE. How are companies screened? The FTSE s Responsible Investment Unit develops the criteria a company must fit to be socially responsible. The FTSE uses third party agencies that rigorously analyse companies and assign socially responsible investing ratings. It reassesses regularly and if a company doesn t pass the screening Vanguard excludes it from the SRI funds. The exclusion criteria are based on the UN Global Compact. This is made up of 10 principles of socially responsible investing including standards relating to human rights, labour relations, the environment and anti-corruption. There is also a weapons screen that excludes companies involved in the production of land mines, cluster bombs and nuclear weapons. Shariah compliant fund managed by HSBC What is Shariah investing? Islamic finance is a unique form of investment that fits with socially responsible investing. It derives its principles from Shariah Islamic law. The most distinctive element of Islamic finance is that interest isn t allowed. Investments must be certified as Shariah compliant by experts in Shariah. This is generally through a committee of Shariah scholars who are qualified to rule on financial transactions. All HSBC Amanah products and transactions are developed in consultation with the Executive Shariah Committee of HSBC Saudi Arabia and approved by them. The major principles of Islamic finance that differ from conventional finance are: ban on interest (Riba) ban on uncertainty (Gharar) and transactions involving uncertainty or risk ban on speculation and gambling (Maisir) both parties in a financial transaction must share the associated risks and profits Shariah prohibits investing in activities considered Haraam those activities which are contrary to Islamic values and deemed unlawful under the Quran, such as alcohol, pornography, gambling and pork based products each financial transaction must be tied to a tangible, identifiable underlying asset and Islamic transactions also require 100% asset backing. As socially responsible funds hold fewer securities than the target benchmark they may experience wider tracking error between their total return and their benchmark than a standard Vanguard index fund. FTSE is a trade mark jointly owned by the London Stock Exchange Plc and The Financial Times Limited and is used by FTSE International Limited ( FTSE ) under licence. 10 Values-based investing

13 How is compliance to Shariah ensured? By a board of independent scholars The SL HSBC Amanah Global Equity Index Pension Fund invests in the HSBC Amanah Global Equity Index Pension Fund which aims to mirror and track the Dow Jones Islamic Market Titans 100 Index. This index consists of Shariah compliant companies that have been endorsed by an independent board of Islamic scholars who advise Dow Jones. This board also provides the ratios to calculate the proportion of any impure income a company makes. Some large Shariah-compliant companies may still generate a small part of their revenue (which must be less than 5%) from non-compliant activities. For example, a company may be fully Shariah compliant, however it generates less than 5% of its revenue through financing operations a non Shariah compliant activity. Dow Jones analyses the annual reports of each Shariah compliant company to determine how much revenue can be attributed to non Shariah compliant activities and how much dividend is therefore considered impure. By HSBC s Amanah Executive Shariah Committee HSBC s own Amanah Executive Shariah Committee also closely monitors the fund to make sure it follows Shariah principles. The committee approves investment in listed companies whose activities do not contravene the principles of Islam. It acts as an additional layer of oversight to the methodology followed by the Dow Jones Islamic Market Titans 100 index. The Amanah Executive Shariah Committee also issues guidelines to quantify the annual amount of impure income that the Shariah compliant companies have generated. Impure income is donated to charity Any impure income the Fund earns is donated to charity. HSBC Global Asset Management proposes charities which the Shariah Committee then approves. Values-based investing 11

14 Pensions Savings Investments Insurance Find out more Standard Life Investments responsible investment For information on Standard Life Investments approach to responsible investment go to and select responsible investing. Standard Life Assurance Limited is registered in Scotland (SC286833) at Standard Life House, 30 Lothian Road, Edinburgh EH1 2DH. Standard Life Assurance Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Standard Life Investments Limited is registered in Scotland (SC123321) at 1 George Street, Edinburgh EH2 2LL. Standard Life Investments Limited is authorised and regulated by the Financial Conduct Authority. INVSRIA Standard Life, images reproduced under licence