Scottish Widows issues warning to 'lagging' asset managers

Written by Sophie Smith

06/07/2023

Scottish Widows has passed the first of its core climate targets two years ahead of its 2025 deadline, although it has issued a "stark warning" amid concerns over a potential misalignment between investment managers and its voting guidelines.

The provider’s latest Stewardship Report included, for the first time, analysis of the voting records of its main managers, which highlighted "clear differences" between their voting activity, particularly on shareholder resolutions.

In particular, the report suggested that while asset managers' engagement activity has improved, they can still better use their voting to ensure measurable and timely positive outcomes from companies.

Scottish Widows is also one of a number of UK pension organisations set to attend a meeting this autumn to discuss concerns regarding alignment with its voting positions, in what is thought to be the first ever collective engagement exercise run by an asset owner community for its asset managers, as opposed to investee companies.

Going forward, Scottish Widows said that it expects to take an "even bigger role" as active owners by directing a larger number of votes across its key priority themes, including through the use of routine votes in its mandated funds.

As part of this, the provider confirmed that it has established a process for asset owners to direct votes in pooled funds, using a policy closest to its own expectations, without extensive in-house resource.

The provider has also been trialling the ability to override votes with its appointed active investment manager, working with Minerva Analytics on this.

Scottish Widows also asked its managers to pay particular attention to updates to its voting guidelines after it refreshed its priority themes last year.

In particular, the provider noted that while the existing 'board diversity' theme remains unchanged, the new 'climate and environment' theme is far more nature focussed than its 'climate and carbon' predecessor.

In addition to this, the new area of human rights is expected to see the company engaging more actively on issues concerning working conditions, employee wages and supply chains.

It also confirmed plans to further enhance its fund range, integrating more environmental, social and governance (ESG) factors across more asset classes and across all of its investments.

Commenting on the plans, Scottish Widows head of responsible investments and stewardship, Maria Nazarova-Doyle, said: “While we have been pleased with the positive strides we have made with our investment managers over the last year, there is still more that needs to be done to ensure activity is aligned with our guidelines – particularly as our thematic priorities continue to evolve.

"Strong stewardship is the foundation of any responsible investment approach and a bedrock for protecting and enhancing value for our customers in the long-term.

“Given that voting is just one tool of stewardship, I am also concerned about the quality of investee companies engagement happening behind closed doors.

“If managers fail to act in line with our priority, which will always be the interests of our beneficiaries, we will have no choice but to take action. We are hopeful that our meeting with our managers this autumn will result in positive outcomes for all parties.”

However, the report also highlighted the provider's progress so far, revealing that it has delivered on the first of its core climate targets two years ahead of schedule, and is now taking steps to incorporate nature-positive thinking more thoroughly into its approach.

In line with this, the report also included an analysis of the exposure of the firm’s portfolio to deforestation.

This revealed that companies categorised as ‘high-risk’ amounting to 12% of corporate exposure, increasing to 28% when including the banking sector.

in light of the findings, the company has committed to identifying priority targets for engagement, also confirming plans to introduce other nature-related indicators, in order build a more holistic view of the real impacts and risks inherent to its current portfolio.

Related Articles