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ESG statement

Is ESG integrated into your investment process? How? Which funds or does this apply to the entire firm?

ESG is integrated across all RLAM funds, though the process depends on the type of product. For our Sustainable Funds, ESG analysis is a fundamental part of the investment research and decision-making process. All companies eligible for investment must have good governance and meet at least one of two criteria: 1) the company provides products and services that have a net benefit to society, or 2) the company is considered an ESG leader relative to its peers.

For other equity strategies, ESG risks are flagged to fund managers so that any risks can be considered within their overall view of the risk/return profile of their individual portfolios. We have a robust governance engagement and proxy voting strategy that applies across our equity funds and fund managers are highly involved in discussions with companies about corporate governance and other material environmental and social risks. We can also undertake portfolio level ESG analysis to highlight risks and identify companies for engagement.

On the fixed income funds, ESG analysis is embedded into our regular credit analysis. This process is led by our Credit Research team which receives assistance and guidance from the Responsible Investment team. Our ESG research for fixed income is tailored to the specificities of the asset class, as we’ve found that it is both ineffective and impractical to apply an equities approach to ESG when looking at fixed income securities. We also offer specific Sustainable fixed income funds, as well as an Ethical Bond fund which applies negative screening on top of our integrated ESG analysis.

In addition to this, we undertake higher level thematic analysis on issues such as culture and conduct in banking, bribery and corruption in the pharma industry, and most recently, the carbon transition. These research projects provide the business with additional insight into broader ESG themes that may have impact on investment strategies or specific company investments.

Who conducts ESG analysis within the team? Is it done by PM, financial analysts or a central ESG team?

Depends on strategy – fund specific analysis is carried out by fund managers and analysts. RLAM company-wide Responsible Investment is carried out by the Responsible Investment team, headed by Ashley Hamilton-Claxton. For full answer – please see below.

RLAM has a team of nine ESG specialists that are responsible for ESG analysis and stewardship activities. This includes the Head of Responsible Investment, a Senior Responsible Investment Analyst and a Senior Corporate Governance Analyst.

The Head of Responsible Investment is responsible for overseeing and implementing our Voting Policy and Stewardship Statement and for implementing our ESG strategy across RLAM. The Corporate Governance Analyst is responsible for all governance analysis, company engagement and proxy voting. The Responsible Investment Analysts provide support in conducting ESG and/or financial analysis.

Our Chief Investment Officer has overall responsibility for responsible investment at RLAM and our Head of Responsible Investment feeds directly into him. RI is also discussed regularly on several committees, including the Investment Committee and our Distribution and Product Committee.

Additionally, we also have a team of sustainable investing specialists including the Head of Sustainable Funds. The Head of Sustainable Funds is responsible for managing our five Sustainable Funds (of which he is the primary Fund Manager), as well as managing a Sustainable Fund Analyst and an additional Sustainable Fund Manager.

Please summarise the key ESG metrics that are core to your strategy?

ESG is integrated across all RLAM funds, though the process depends on the type of product. For our Sustainable Funds, ESG analysis is a fundamental part of the investment research and decision-making process. All companies eligible for investment must have good governance and meet at least one of two criteria: 1) the company provides products and services that have a net benefit to society, or 2) the company is considered an ESG leader relative to its peers.

For other equity strategies, ESG risks are flagged to fund managers so that any risks can be considered within their overall view of the risk/return profile of their individual portfolios. We have a robust governance engagement and proxy voting strategy that applies across our equity funds and fund managers are highly involved in discussions with companies about corporate governance and other material environmental and social risks. We can also undertake portfolio level ESG analysis to highlight risks and identify companies for engagement.

On the fixed income funds, ESG analysis is embedded into our regular credit analysis. This process is led by our Credit Research team which receives assistance and guidance from the Responsible Investment team. Our ESG research for fixed income is tailored to the specificities of the asset class, as we’ve found that it is both ineffective and impractical to apply an equities approach to ESG when looking at fixed income securities. We also offer specific Sustainable fixed income funds, as well as an Ethical Bond fund which applies negative screening on top of our integrated ESG analysis.

In addition to this, we undertake higher level thematic analysis on issues such as culture and conduct in banking, bribery and corruption in the pharma industry, and most recently, the carbon transition. These research projects provide the business with additional insight into broader ESG themes that may have impact on investment strategies or specific company investments.

How is this research carried out? Positive/negative screening? Qualitative?

This research depends upon strategy under review:

External policy ratings

The UN PRI provides us with an external rating of our firm wide and asset-class specific performance, including reference to policies. As mentioned in a previous answer, in July 2020, we were awarded A+ scores for our Strategy & Governance, Listed Equity Incorporation and Fixed Income (Corporate Non-Financial) modules following our 2019 assessment submission. Our relationship with the UN PRI sees us respond to consultations surrounding it’s reporting framework and engaging in collaborative initiatives to realise collective corporate goals.

Sustainability integrated at a corporate level

RLAM has a clear strategic objective of building business success through delivering good investment performance and strong client relationships. Our Group’s Corporate Social Responsibility (CSR) policy is placed at the heart of what we do as a company and allows us to better achieve this objective. Our CSR policy covers four key areas: sustainable investment; environment; community; and workplace. We monitor and report on progress within these categories on a regular basis.

Our new company purpose “Protecting today, investing in tomorrow. Together we are mutually responsible” reinforces the value we place on putting our customers at the heart of what we do. At Royal London, we believe it is our responsibility to work in the best interests of our clients and all of our staff are empowered to contribute towards this objective. In practice, this can be seen through our social impact strategy which is centered on building financial resilience, promoting long term savings and strengthening our responsible business activity. We’ve set a total of 10 commitments under these overarching themes.

We have a proud history of leading the way for positive change, and we’ve always been committed to doing the right thing. So we’re looking closely at how we can make our own offices, operations and supply chain more environmentally friendly and sustainable. We have set in place a number of initiatives to reduce our carbon emissions, as well as limit waste and support sustainable environmental practices and are ISO 14001 compliant. Recognising that climate change is an issue that can impact all areas of our business, we’ve created a strategy that applies to our investment activities, operations, approach to risk management and our commitments to our stakeholders.

We have made five public commitments to manage the impact of our operations and investment practices on the climate. These commitments apply across Royal London Group:

  • Climate risk will form a key consideration within our risk management and business planning
  • We’ll consider climate change risks and opportunities in our operations
  • We’ll keep stakeholders informed of progress at least once a year in line with recommendations form the Task Force on Climate-related Financial Disclosures (TCFD)
  • Commitment to producing a climate risk policy
  • We will use our position to promote the case for a low carbon economy

Progress made towards these commitments includes:

  • Drafting an RLAM climate risk policy and a Group and RLAM level TCFD report, in response to TCFD recommendations. The two outputs will detail more information on how we embed climate risk into our risk management and business planning operations
  • Hiring a Group Environmental and Sustainability manager and a Group Climate Lead to help drive our responsible investment strategy and further embed ESG risk into strategic decision making
  • Creating an Environmental Improvement Plan that will support us in setting environmental targets
  • Launching an internal Environmental Champions Network to spearhead change initiatives
  • Taking positive action, such as removing single-use plastic cups from our offices and shifting our electricity contracts to renewable energy where possible
  • Engaging with companies on climate strategies and working with CA 100+ to target the highest polluting companies globally

For more information on our Group corporate sustainability strategy, please see the Social Impact Report 2019: https://www.royallondon.com/siteassets/site-docs/about-us/social-impact/royal-london-social-impact-report-2019_final.pdf

What best practices of RI-based investing do you employ within your own firm?

RLAM strives to continually embed best practice into our investment process and therefore we believe our entire ESG strategy stands up against this criterion. Our Stewardship Report 2020 lays out our approach to ESG within RLAM and so many of our practices are discussed in detail in that report.

Whilst we don’t want to pull out one practice as standing above the rest, one approach which we’ve recently formalised is our ESG reviews with Fund Managers. These meetings are either conducted with individual Fund Managers, or with groups of Fund Managers depending on how similar their investment strategies are to one another. The regular reviews are an opportunity for RLAM to formalise and document ESG conversations and are illustrative of the collaborative approach the RI Team has with Fund Managers. There is no set agenda at these meetings and this allows us to be flexible to the Fund Managers investment strategy, as well as the specific stock exposure within the fund. Meetings often focus on stock deep dives, as well as thematic research and engagement activity updates.

In addition to the formal meetings, ESG insights are also provided via day-to-day informal catch-ups and also via proxy voting.

Overall, we recognise that Responsible Investment is an ever evolving fast paced market and so we expect our practices to continually evolve alongside best practice expectations. The above is one example of where our practices change within a given year to ensure we are meeting these expectations.

Does your firm have an existing RI policy?

RLAM issues a Stewardship and Responsible Investment Report, which covers our beliefs and commitment and our voting policies.

How do you measure your success regarding ESG? Performance against benchmarks (which ones)? Reports?

In keeping with our corporate values, we are committed to being transparent and open about our approach to stewardship and responsible investment. With transparency as the main driver, many of our clients receive quarterly reports which provide details on how we have implemented responsible investment and stewardship within their fund. These reports may include voting data, engagement examples and case studies, and investment commentary highlighting how ESG considerations were factored into investment decisions in the quarter. We also regularly meet to discuss ESG issues with clients, and we make our investment staff and Responsible Investment team available to provide their expert insights. In addition, we disclose our annual PRI Assessment results on our website.

We continue to educate and inform our internal audiences on responsible investing by working with fund managers, sales, marketing and client service teams to explain and refine how we communicate about responsible investing. We share information on key issues facing current and prospective clients such as fossil fuel divestment, and assist the client service teams in responding to an increasing number of customer queries on our responsible investment approach. Often this requires a lot of education for our clients who are unfamiliar or new to stewardship and responsible investing.

Is your business a signatory to PRI? Why, why not?

RLAM has been a signatory to the United Nations Principles for Responsible Investment (UN PRI) since 2008. In July 2020, we were awarded A+ scores for our Strategy & Governance, Listed Equity Incorporation and Fixed Income (Corporate Non-Financial) modules following our 2019 assessment submission. Our relationship with the UN PRI sees us respond to consultations surrounding it’s reporting framework and engaging in collaborative initiatives to realise collective corporate goals.

Score as at 2020:

AUM Module Name Score
Strategy & Governance A+
10-50% Listed Equity – Incorporation A+
10-50% Listed Equity – Active Ownership A
10-50% Fixed Income – SSA A
<10% Fixed Income – Corporate Financial A
10-50% Fixed Income – Corporate Non-Financial A+
10-50% Fixed Income – Securitised A
<10% Property A

 

Are you disclosing climate change policies in line with the Task Force on Climate-Related Financial Disclosures (TFCD)? Please briefly outline your policies.

In June 2020, RLAM joined the supporters of the Financial Stability’s Board TCFD. We published our standalone climate policy in late 2020. Our first climate risk report aligned with TCFD recommendations will be published in April 2021 along with our financial results. We are happy to share a confidential copy with SJP following approval by our Board.

In the report, we provide disclosure of RLAM’s climate governance, risk management and strategy as well as our exposure to climate risk for equities, corporate fixed income, sovereign bonds and property asset classes. We also provide our first estimations of Paris alignment for equities and corporate fixed income assets class, and disclose preliminary stress-testing of these assets to different climate scenarios.

Following the TCFD and CFRF recommendations, in the report, we detail our climate governance, strategies for integration and risk management for each asset class.

Has your business signed up or committed to any other campaigns relating to ESG?

The frameworks and initiatives that we have committed to are set out below.

Principles for Responsible Investment

In 2019, RLAM signed the Statement of Investor Commitment to Support a Just Transition on Climate Change. The statement was endorsed by 143 fellow investors and represented US9.1 trillion assets under management. We also signed a joint letter coordinated by the PRI to initiate engagement with over 500 mining companies requesting health and safety information in relation to tailings dam management. We often attend PRI events, both physically and through digital channels such as webinars. We continue to monitor the situation regarding the PRI’s governance. We have collaborated in Clearinghouse initiatives from time to time where the objectives of the engagement are aligned with our own. We have also engaged with the PRI on how to improve the annual reporting and assessment process.

Climate Action 100+

RLAM is a signatory of the Climate Action 100+ (CA100+). We are co-leading the work on utilities as part of the European branch led by the Institutional Investor Group for Climate Change (IIGCC). We are also the lead investor on a number of company engagements.

Global Real Estate Sustainability Benchmark (GRESB)

We are a member of GRESB and our property team regularly engages with them on ESG performance in our property portfolio.

Green Bond Principles

We leverage these principles on an ongoing basis, we provide analysis to clients and attend seminars as participants where possible.

Institutional Investors Group on Climate Change (IIGCC)

RLAM has long been a signatory and supporter of IIGCC. We have recently significantly increased our collaboration with this group after further expanding our team. We are an advisor to three IIGCC committees: portfolio alignment, resolutions, and sector coordination. RLAM collaborated with the IIGCC network to engage with companies regarding the decarbonisation and decentralisation within the UK gas sector. We are a regular spokesperson and supporter of IIGCC. We have also commented on key documents, including the oil and gas expectations for investors.

UK Sustainable Investment Forum (UKSIF)

We regularly attend members’ meetings and seminars/events held by UKSIF.

Access to Medicines Index

We are a signatory to the initiative.

Workforce Disclosure Initiative (ShareAction)

We co-signed on the Workforce Disclosure Initiative, convened by ShareAction.

30% Club Investor Group

We participate in regular investor meetings to discuss board and executive diversity and participate in collaborative engagement with companies and awareness raising activities.

 

Part of the Bonhill Group.