Responsible investment

How we incorporate environmental, social and governance (ESG)

How responsible investment aims to make you money without compromising the future

We all want to make responsible choices as more of us are becoming aware of global challenges, such as environmental issues, human rights and climate change. We’re also starting to care more about how our behaviours affect the planet and society.

We’re swapping the products we buy to those that are more environmentally friendly, as well as taking more time to consider our own impact on recycling, waste and pollution. That mind-set is also changing the way we invest money.

In the past, ethical funds that excluded certain types of investments, such as tobacco and weapons, were the only choice if we wanted to match our investments to our values. These funds are still popular but they’re now joined by a range of other options that let us invest responsibly.

What is responsible investment?

Responsible investment is a combination of different approaches to managing money that includes environmental, social and governance (ESG) factors. Investment managers will:

decide what to invest in
look at ESG factors in companies, so they can combine managing risk better while aiming for long-term returns
offer funds with specific ethical, environmental or social goals
encourage better ESG behaviours by using their role as a steward of investments

When we talk about responsible investment, we’ll mainly use these two terms:

ESG incorporation

Investment managers can include ESG in both how they invest and how they design their individual funds.

ESG integration

A process used to analyse a company’s approach to ESG to help spot opportunities and manage risks (can be applied across all funds). This doesn't include screening. So investments which could be seen as negative may still be included.

Screening

Funds that exclude/include investments based on ethics and values (includes ethical funds).

Thematic

Funds aiming to achieve a financial return alongside a specific environmental or social outcome (includes impact funds).

Stewardship

There are two ways investment managers can better understand ESG risks and influence positive change.

Engagement

Talking to companies they invest in about their ESG activities and practices to encourage better policies and conduct in these areas.

Proxy voting

Using voting rights on behalf of investors to encourage good management of matters such as governance, tax practices and climate change.

Standard Life Assurance Limited's approach to responsible investment is based on the United Nations-supported Principles of Responsible Investment (PRI) and the UK Stewardship Code.

How ESG is integrated into your investment choices

When it comes to your investments, we’re accountable. That’s why it’s integrated into our investment options. It’s also why we need to understand how our investment managers integrate ESG when building portfolios.

How ESG factors are applied to Standard Life’s range of investment options

The following table shows a summary of how ESG factors are applied to our easy investment options and our do-it-yourself investment options. You can find more details below the table.

	ESG Incorporation			Stewardship
	Integration	Screening	Thematic	Engagement	Proxy voting
Easy investment options:
Sustainable Multi Asset (lifestyle profile) *Note 6			-
Active Plus range (funds and lifestyle profiles which include the funds) *Note 1		-	-
Passive Plus range (funds and lifestyle profiles which include the funds) *Note 2	-	-	-
Passive Core (lifestyle profile) *Note 2	-	-	-
MyFolio Managed range (funds and lifestyle profiles which include the funds)		-	-
MyFolio Index range (funds) *Note 2	-	-	-
Managed Fund (fund and lifestyle profiles)		-	-
Do-it-yourself investment options:
Funds managed by Aberdeen Standard Investments		*Note 3	-
Funds managed by other external fund managers	*Note 4	*Note 5	*Note 5	*Note 4	*Note 4

Most of the funds in the Active Plus range are actively managed by Aberdeen Standard Investments. Aberdeen Standard Investments integrates ESG into their investment management processes. They have the information and flexibility to take account of ESG analysis and factors when they select investments for their portfolios. The Active Plus range also invests a portion in passively managed funds. This is when an investment manager tracks the performance, before charges, of a benchmark or index rather than making active investment decisions about where money is invested. This means they don’t actively integrate ESG into their investment processes. However, as a steward of an investment they can influence positive change using engagement and voting rights.

The Passive Plus and MyFolio Index ranges, and the Passive Core lifestyle profile invest predominantly in passively managed funds. This is when an investment manager tracks the performance, before charges, of a benchmark or index rather than making active investment decisions about where money is invested. This means they don’t actively integrate ESG into their investment processes. However, as a steward of an investment they can influence positive change using engagement and voting rights.

These include ethical funds which use screening approaches.

Standard Life offers a range of funds managed by other external fund managers. A number of these have ESG and/or stewardship within their investment processes.

Standard Life offers a range of funds that include specific values-based themes and ethical screening approaches. Find out more about these choices below.

The Standard Life Sustainable Multi Asset Universal Lifestyle Profile takes into account a range of sustainability factors, particularly those that can have a negative financial impact on the performance of companies which the underlying funds invest in. It does this by using the following responsible investment techniques:

Avoid the bad – screens out companies with significant sustainability risks
Improve the good – targets improved sustainable outcomes when compared to the indices which the underlying funds track
Drive change for the better – company engagement and proxy voting are used to drive positive change

Easy investment options

The funds in the Passive Plus and MyFolio Index ranges, and the Passive Core lifestyle profiles are mainly actively managed by Aberdeen Standard Investments. This means that ESG is integrated at all stages, as active investment managers have the freedom and flexibility to fully integrate the outcomes of ESG analysis in their investment strategies. Although ESG is integrated at all stages of the investment management processes, screening and thematic approaches may not be applied. So investments which could be seen as negative may still be included.

If you’re invested in an Active Plus option

Find out more
For an easy way to start investing, see the MyFolio Managed options

Find out more
If you have one of our traditional investment options

Find out more

The funds in the Passive Plus and MyFolio Index ranges, and the Passive Core lifestyle profile use some underlying investments that track a market index, so ESG isn’t integrated into the selection of individual stocks. But all the passive investment managers we use have established investment stewardship programmes.

Do-it-yourself investment options

We expect all of the investment managers we work with to show how they apply responsible investment to their funds.

There may be occasions when this isn’t possible, for instance where a passive investment manager has to track a broad market index. Apart from exceptions like this, we would like all the investment managers we work with to:

engage effectively with companies and, when necessary, escalate this engagement to drive better long-term performance from the business as a whole
use the voting rights they have to encourage positive commitments or practices
deliver robust reporting on their ESG engagement activities, including details on the factors they discuss, and any actions or outcomes agreed during these meetings

You can find out more about how Standard Life Assurance Limited incorporates ESG into the insured (pension and life) fund range (0.42 MB).

A choice of screening or thematic approaches

If you want to invest in a way that suits your financial goals and values by avoiding or limiting investment in ‘bad’ companies, or creating ‘good’ portfolios through screening or thematic approaches, Standard Life offers a range of funds for you.

You can choose actively managed funds that screen for positive or negative criteria

You can decide to invest in one of our funds that uses positive or negative screening criteria.

Their positive criteria look for companies which are involved in activities that benefit society and the environment. Their negative criteria looks to avoid investment in companies involved in certain industries and practices such as animal testing, climate change impacts and human rights issues.

Find out more about the ethical funds offered by Aberdeen Standard Investments.

You can see the choices that are available in the table below and you can download their factsheets to learn more about each.

Fund name	Pension	ISA
Standard Life Ethical Pension Fund (70.8 KB)
SL ASI UK Ethical Equity Pension Fund (71.9 KB)
SL ASI Ethical Corporate Bond Pension Fund (74.9 KB)
SL ASI Europe ex UK Ethical Equity Pension Fund (71.8KB)
SL Threadneedle UK Social Bond Pension Fund (179 KB)
SL Nordea Global Climate and Environment Pension Fund (175KB)
SL Nordea Global Gender Diversity Pension Fund (175KB)
Standard Life Sustainable Mullti Asset Pre Retirement Pension Fund (179KB)
Standard Life Sustainable Mullti Asset At Retirement Pension Fund (178KB)
SL Schroder Sustainable Multi-Factor Equity Pension Fund (172KB)
ASI Ethical Corporate Bond Fund (71.9 KB)
ASI Europe ex UK Ethical Equity Fund (91.1 KB)
ASI UK Ethical Equity Fund (85 KB)
Threadneedle UK Social Bond Fund (116 KB)

You can also invest in passively managed funds that take a different approach

These funds have broad coverage of the market, but exclude investments that don’t meet specific socially responsible or religious principles.

You can see what’s available in the table and read the factsheets to find out more.

Fund name	Pension	ISA
SL Vanguard SRI European Stock Pension Fund (184 KB)
SL Vanguard ESG Developed World All Cap Equity Index Fund (183 KB)
SL HSBC Islamic Global Equity Index Pension Fund (180 KB)
Standard Life Sustainable Multi Asset Growth Pension Fund (172KB)
SL ASI Sustainable Index UK Equity Pension Fund (171KB)
SL ASI Sustainable Index World Equity Pension Fund (171KB)
SL BlackRock ACS World ESG Equity Tracker Pension Fund (169KB)
SL BlackRock ACS World Multifactor ESG Equity Tracker Pension Fund (170KB)
SL State Street ACS Multi-Factor Global ESG Index Equity Pension Fund (176KB)
Vanguard SRI European Stock Fund (193 KB)
Vanguard SRI Global Stock Fund (193 KB)

How investment managers use ESG integration to manage risk

If you’re looking for something that’s relevant in all investments then you’ll be looking for ESG integration. This is when investment managers use ESG integration at the same time as all their other financial analysis.

Investment managers look at whether a company’s ESG activities and practices are offering investment opportunities or exposing it to risks. They might look at the impact a company has on local communities and climate change, or how they manage their supply chain or natural resources.

On top of their usual research, investment managers will look at these areas:

Environment

An investment manager can look closely at a company’s impact on land, sea, air, wildlife, plant life and the climate. They might consider things like how much energy a company uses, waste disposal, land development and carbon footprint.

Social

An investment manager can review a company’s relationship with its employees, suppliers and the community where it operates. They might consider things like labour practices, human rights, employee wellbeing, health schemes for staff and supplier relationships.

Governance

An investment manager can look at the issues that might affect a company’s management and processes. They might consider things like who’s running the company, how the company and its finances are managed, and how it approaches salaries and strategy.

Using stewardship to influence positive change

In its broad sense, stewardship means overseeing or taking care of something. Investment stewardship is no different; it’s about engaging with companies to understand all the risks and opportunities they present, to promote their long-term success. Doing this benefits everyone; from the individual company, to its investors, to the economy as a whole.

Active engagement

By regularly talking to companies, investment managers can better understand their strategy, performance, risk, capital structure and corporate governance.

It’s a way to spot both opportunities and risks, as well as:

influence positive corporate behaviour
encourage better sustainability, resource efficiency and involvement with society

Proxy voting (casting votes on behalf of investors)

Another way that investment managers can influence change is to use voting rights. That’s when they cast votes on behalf of investors on matters such as good governance, climate change, tax practices, labour standards, diversity, bribery and corruption.

Approach to stewardship and engagement

Standard Life Assurance Limited's approach to stewardship is based on:

The UK Stewardship Code 2020
The Financial Conduct Authority's ('FCA's') Policy Statement ('PS') 19/13

The FCA PS outlines how UK firms should implement the European Union's Shareholder Rights Directive II ('EU SRD II'), which came into force in June 2019. Find out more here.

Understand how screening and thematic approaches can reflect your values

You can choose from a range of funds that aim to achieve a financial return alongside a specific ethical, environmental or social outcome. These types of funds are often described as using ‘screening’ or ‘thematic’ approaches.