Get to know your pension better with our responsible investing jargon buster

id

Responsible investing at Standard Life is first and foremost about helping you aim for a good retirement. Discover more today with our jargon buster. 

What’s the money in your pension pot up to? It doesn’t just sit there. It’s invested to help you aim for a lifetime of possibilities. And where it’s invested can help to make a difference – not just to your financial future, but also to the world we live in. 

But it can be difficult to understand how it all works. So, let's simplify things with our jargon buster.

Sustainability: all eyes on the future

Sustainability means meeting the needs of the present without compromising the ability of future generations to meet their own needs, as defined by the United Nations. It covers many issues including poverty, decent (fair and safe) work, climate action, gender equality, economic growth, access to clean water and quality education. 

In a nutshell, it means making better choices today to support the planet and its resources – for us, and future generations, too. 

Sustainability can present long-term financial risks and opportunities, so it can make sense to consider this when it comes to your pension investments.

Environmental, social and governance (ESG): the bricks and mortar

When investors talk about ESG factors, they’re looking at how companies manage these areas and what that could mean for their long-term performance. 

There’s a lot to think about: a company’s supply chains, its readiness to move to a low-carbon future, its waste disposal and energy use, along with how it treats its employees and local communities. These are just some of the areas where a company can fail or flourish.  

id

That’s why investment managers may dig deep into the detail to look for potential ESG risks and opportunities on the horizon. This analysis – often called ESG integration – helps them to decide which companies to invest in and to aim to better manage performance over the long term. 

Investors will also encourage companies to improve their ESG standards as this could support effective management of risks and opportunities; you can find out more about this in ‘stewardship’.

Examples of ESG factors and what they can include

Environmental: how prepared a company is as we move to a low-carbon future; are they at risk of financial loss, or perhaps they’re in a growing sector of the future. Then there’s how environmental factors such as climate change affect a company’s ability to operate. This could include flood risk or resource scarcity. On the flipside, how is a company impacting the environment – for instance, its energy usage, waste disposal, land development and carbon footprint.

Social: a company’s relationship with its employees, suppliers and the community where it operates. Examples include labour practices, human rights, employee wellbeing, health schemes for staff and supplier relationships.

Governance: a company’s management and processes. These include who’s running the company, how the company and its finances are managed, and how it approaches salaries and strategy.

You can find out more about ESG factors in our short video.

Responsible investing/investment: the umbrella term

Responsible investing means considering environmental, social and governance (ESG) risks and opportunities when deciding where to invest money. Why does this matter? We believe it leads to better financial outcomes for investors. You can find out more under 'ESG'.

At a high level, it’s looking at how a company is managing ESG risks and opportunities and how that could affect its performance over the long term. And, if needed, encouraging the company to do better – see ‘stewardship’. 

There are different types of responsible investor. But for most, responsible investing is about focusing on achieving financial value from the companies they invest in. So they’ll consider how ESG issues could affect that.

Stewardship: influencing companies to do better

Stewardship means using our power as investors to encourage companies to improve. Read on or watch our short video to find out more. 

When it comes to the money invested in your pension, it’s about talking to the companies we invest in (on your behalf) to manage risk, deliver value for you, as well as driving positive change. This is achieved using engagement and voting and in partnership with investment managers.

Engagement: talking to companies to understand how they’re run and the risks and opportunities they face. Also setting out standards we expect them to meet in working towards a more sustainable and financially successful future. An example would be talking to a company about its climate plans and how it sources certain products.

Voting: as shareholders in a company, our investment managers can vote for or against proposals at meetings. For example, it may be necessary to vote against management boards who lack independence, or where their salaries/rewards are not clearly linked to achieving the financial success of the company. 

Climate change: a burning issue

In the Paris Agreement in 2015, world leaders pledged to keep global temperature rises well under 2°c and to aim to limit the increase to 1.5°c. The 1.5°c target was agreed because there is evidence that the physical impacts of climate change would become more extreme if global temperatures rise above this level. The Paris Agreement includes a commitment to 'net zero'. 

Defining climate change

Climate change refers to long-term shifts in temperatures and weather patterns, as defined by the United Nations. While this can happen for natural reasons, the burning of fossil fuels, such as coal, oil and natural gas, since the 1800s has been the main driver of the climate change we’re currently witnessing.

Climate change presents long-term financial risks and opportunities. That’s why we consider these factors when we decide where to invest.

Transition risk: ready or not for a low-carbon future

As we move to a low-carbon economy, some companies could lose their value. This is known as transition risk. 

This may happen through a lack of demand for their products, as consumers make more environmentally friendly choices. There are potentially extra costs to adapting their business to a sustainable future – and possibly regulatory fines if they fail to do so.

An example is some types of coal producers. With demand for fossil fuels expected to reduce, investing into these companies may not be as financially beneficial in the future. It’s important that these companies adapt to the energy transition if they’re to remain profitable for the longer term. 

But where there are financial risks, there’s also opportunity. This might be companies building products and solutions that support a low-carbon future – alternative energy, ‘green’ buildings, pollution prevention, sustainable water and sustainable agriculture.

Carbon footprint and greenhouse gas emissions

Greenhouse gas (GHG) emissions trap heat in the Earth’s atmosphere, leading to global warming and climate change. The main greenhouse gases include carbon dioxide, nitrous oxide, methane and fluorinated gases. These gases are released into the atmosphere through natural sources and human activities including burning fossil fuels (such as coal and oil) for energy, transportation and agriculture. To measure this use we can calculate a carbon footprint.

We report the emissions using a common unit of measurement, carbon dioxide equivalents (CO2e). This means we can measure and compare the global-warming potential of gases from different sources and activities (which fall under different scopes; scope 1, 2 and 3) separately and as a total. They are measured in tonnes of carbon dioxide equivalents (tCO2e).

Greenhouse gas emissions are categorised into three groups or ‘scopes’: 

Scope 1 emissions are those a company makes directly to produce the goods and services it offers. One example is a power company using natural gas or coal to generate electricity. Another is when a company owns and provides petrol or diesel company cars, which emit GHGs while being driven, for its staff to use. 

Scope 2 emissions are those being produced indirectly on behalf of a company. So, this might be when a company consumes purchased electricity or energy it has paid for to heat or cool buildings it owns or rents or to use the lights in an office building. 

Scope 3 emissions include 15 other types of indirect emissions that might be linked to a company. These types of emissions are quite broad. They cover things like transporting and supplying the materials a company uses, shipping goods after they have been produced, and – ultimately – a company’s customers using anything it produces. 

You can find out more about what climate change could mean for your investments in our Fund Climate Report and Climate Information Guide. 
 

2015 Paris climate agreement: an international treaty on climate change

The 2015 Paris climate agreement is an international treaty on climate change, agreed to by most of the world’s nations, including the UK. 

At the 2015 UN Climate Change Conference (COP21) in Paris, 196 parties agreed to try to limit global temperature rises to 1.5°c above pre-industrial (1800s) levels. 

It was agreed that, to limit global temperature rises in this way, a long-term commitment was needed to achieve net zero emissions by 2050.

Find out more about The Paris Agreement 

Net Zero: reducing and removing CO2 to stop global warming

Net zero is a state where we no longer add to the total amount of greenhouse gases in the atmosphere. Emissions output is balanced with removal of carbon from the atmosphere.

It involves organisations, individuals and countries taking steps to reduce their emissions in a sustainable manner. If we achieve this collectively, we can deliver the longer-term goals to stop global warming and, by doing so, limiting potential financial risks to investors. 

Offsetting: paying somebody else to compensate for your emissions

A company wanting to become net zero may pay somebody else to offset its remaining CO2 emissions after it has done everything it can to reduce its emissions. 

Planting trees, which remove CO2 from the atmosphere, is the most common example. Offsetting is only credible if it’s used as a measure of last resort and is verified through recognised schemes. 

Greenwashing risk: companies overstating their commitment to sustainability

Greenwashing is when companies are making sustainability or green claims that aren’t factually true. Overstating a commitment to tackle climate change or the positive impact of a company’s products, services or operations are examples. 

Anti-greenwashing involves efforts to uncover unsubstantiated claims that could deceive customers and shareholders. 

There’s increasing regulatory focus on anti-greenwashing. Companies caught greenwashing could face significant regulatory, financial, and reputational risks.

Thematic investing/funds: specific environmental or social goals

The goal of a thematic fund is to grow the value of the investment while focused on a specific environmental or social goal. 

Examples include investing in renewable energy and climate solutions, social housing and education, or investing in companies with high levels of gender diversity and equality. 

Impact investing/funds: a measurable change

Impact funds aim to generate a positive, measurable social and/or environmental impact alongside a financial return. Impact funds may sacrifice financial return in favour of achieving their intended social and/or environmental impact. 

Examples include investing in companies solving problems through products, services and business operations, for example, renewable energy, affordable housing and accessible education. 

Exclusions and screening: ruling certain investments in or out

In combination, exclusions and screening are just one of a range of tools that can be used to manage          ESG risks in investments. Usually, they're used alongside wider tools, like engagement. 

Exclusions mean not investing in particular sectors or companies.

Investment managers might apply exclusions for a variety of reasons, but they're most likely to do it if they believe one or more of the following is true: 

• A sector or company is facing acute social or environmental challenges that are very likely to translate to financially material risks.
• Engagement either hasn't been or won't be successful for particular sectors or companies.
• The sectors or companies concerned aren't sticking to the minimum international standards of behaviour.
• A sector or company doesn't align with their values, or presents reputational risks. 

Screening means applying filters to decide whether to consider investing in a particular company. In responsible investing, there are many different screens, for example: 

Negative criteria – used when looking to avoid investment in companies involved in certain industries and practices, and/or who are not managing their ESG risks well. These could include companies involved in animal testing, climate change impacts or human rights issues that also present financial risk to investors. An investment manager might remove these companies by excluding them or screening them out.  

Positive criteria – used when looking for or ‘screening’ companies which are involved in activities that benefit society and the environment.

For example, positive criteria could help to identify a company that is managing its   ESG risks well, has a lower carbon intensity rating or is involved in green technology – meaning it may carry greater potential for future growth.

Ethical investing: investing according to your beliefs

Ethical investing dates back to the 1900s. As its name suggests, it’s all about ethics. 

An ethical investor is choosing where to invest based on their values, rather than aiming to achieve a financial result. They’re ruling out ‘harmful’ investments and therefore avoiding certain types of company or industry. 

Today’s ethical investments tend to exclude investment in companies involved in industries and practices such as tobacco, alcohol and gambling.

Ethical investing often refers to ‘screening’ out certain investments based on strict negative criteria. 

Sustainable investing: an enhanced approach to responsible investing

Sustainable investing takes an enhanced approach to responsible investing. Sustainable investment options (or funds) have additional ESG targets such as reducing the carbon impact of the fund’s investments. Sustainable funds mostly aim to support investments that benefit society and/or the environment and typically avoid those that don’t.

Sustainability disclosures: helping you understand responsible investment options

Sustainability disclosures aim to help consumers understand the investment process, objectives and performance of sustainable investment products. The investment's decarbonisation targets should be included with this information. You can read more about sustainability disclosures here.

SDR: the UK's Sustainability Disclosure Requirements

The Financial Conduct Authority's (FCA's) Sustainability Disclosure Requirements are designed to reduce greenwashing and to make the naming and marketing of    sustainable investment products easier for consumers to understand.  To aim to do this, they include four product labels - Sustainability Focus,    Sustainability Impact, Sustainability Improvers and Sustainability Mixed Goals. You can find out more on the FCA’s website.

Sustainability labels: helping you find products with a specific goal

Sustainability investment labels aim to help investors find products that have a specific sustainability goal.

Sustainability Focus

These funds invest mainly in assets that focus on sustainability for people or the planet. Examples may include activities to support the production of energy, for example, from solar, wind or hydrogen.  

Sustainability Impact

These funds invest mainly in solutions to sustainability problems with an aim to achieve a positive impact for people or the planet. Examples may include renewable energy generation and social housing. 

Sustainability Improvers

These funds invest mainly in assets that may not be sustainable now, but aim to improve their sustainability. Examples may include investments in companies that are on a credible path to  net zero by 2050, or are committed to improving social standards such as human rights. Stewardship plays a key role to supporting this improvement.

Sustainability Mixed Goals

These funds invest mainly in a mix of assets that either focus on sustainability, aim to improve their sustainability over time, or aim to achieve a positive impact for people or the planet. Examples may include a mixture of investments from the labels above (Focus, Impact and Improvers). 

Understanding Sustainability Objectives

If an investment product has one of the Sustainability Labels mentioned above, it must also have a Sustainability Objective. 

This should set out how it intends to improve environmental or social outcomes. It must also say whether working towards positive sustainability outcomes could reduce its potential to grow in value.
 

Sustainable Label Qualifying Criteria

These are the criteria that UK-based investment funds need to stick to in order to have one of the Sustainability Labels described above. The criteria create a robust and credible standard. 

In addition, each fund has a   Sustainability Objective. This sets out what the fund aims to do to improve or pursue a positive environmental and/or social outcome as part of its investment approach.

The investment policy and strategy set clear expectations that at least 70% of the investments in a fund need to align to its sustainability objective. 

If a fund holds any other investments, the manager should explain why they are held. This may include things like cash, which could be used to help run the fund.
 

United Nations Global Compact (UNGC) Principles: providing a framework for companies

There are ten principles of the UNGC which aim to provide a common ethical and practical framework for companies to manage sustainability in their business. These principles align with international standards on human rights, labour rights, environmental and     climate change issues, and anti-bribery and corruption efforts.

Find out more

There are lots of reasons to invest responsibly including aiming for better financial outcomes in the long term. And there are lots of ways to do it.   

You may be able to find out more about where you're invested through your provider's app or your online account with them,if you've got one. You can also find out more about responsible investing at Standard Life here. 

Along with the pensions industry, we’re on a journey to becoming a net zero business by 2050. Our first priority is to support a better financial future for our customers, but we want to support wider, impactful change at the same time. 

To do this, we’re taking actions we think can help to tackle the climate crisis and manage financial risk for our customers. We’re thinking carefully about where we invest in carbon-emitting sectors and engaging with those contributing the most to the climate crisis to encourage real change.

Find out more about our Net Zero Transition Plan It’s important to note that Standard Life is part of Phoenix Group, so the data shown is for all the Phoenix Group brands combined.

You can also find more information in our Fund Climate Report.

id

 

 

The value of investments can go down as well as up and may be worth less than what was paid in.

The information here is based on the understanding of Standard Life in October 2025 and shouldn’t be regarded as financial advice. Standard Life accepts no responsibility for information on external websites. These are provided for general information