What is sustainable investing?
ESG stands for Environmental, Social and Governance. Analysing these factors can be a key way to assess the sustainability and social impact of an investment in a company or a business. At Fidelity, we use the term ‘sustainable investing’ to encompass ESG issues and related topics in this continually evolving area.
Why is ESG important?
- Environmental considerations involve looking at the impact companies have on their environment and focusing on issues such as climate change, pollution, waste management and the use of natural resources.
- Social factors include the ways companies affect society through, for example, their employment practices, and the safety and quality of their products.
- Governance refers to factors such as a company’s stated objectives, as well as its regulatory compliance, management structure and senior manager compensation.
Analysing ESG factors is a key way to assess the sustainability and social impact of an investment and to identify risks. Fund managers can factor this information into their investment decisions.
What is Sustainable and ESG investing?
In our video Fidelity Investment Director Tom Stevenson sheds some light on sustainable investing and ESG and the different ways investors can tap into the theme.
To find out how companies are performing on integrating ESG factors, fund managers may meet or consult executives and directors. The information they gather could influence the way they vote at shareholder meetings. For example, they may vote against a proposal if the company has not responded to questions about ESG issues or it they feel it is not acting in the long-term interests of its shareholders.
This process of engaging with company executives is known as stewardship, and its aim is to promote the long-term success of investments.
We carefully monitor the funds we offer through our Workplace pensions, and we expect all the fund managers we work with to outline how they engage with companies on ESG issues. In addition, we require them to measure the effectiveness of their strategy for engaging with companies in terms of how it benefits members of pension schemes and other investors. We also encourage fund management companies to become signatories of the PRI and the UK Stewardship Code.
Each of the fund management companies we work with is expected to have a shareholder engagement policy that complies with the EU’s Shareholder Rights Directive II. This directive is designed to encourage greater transparency on stewardship issues and make it easier for investors to understand their investments.
Read the Fund Managers’ shareholder engagement policies for FIL Life Ltd here.
Read the Fund Managers’ shareholder engagement policies for FIL Life (Ireland) DAC Ltd here.
Read our Shareholder Engagement Policy here.
Sustainable investing and climate change
Climate change is the critical issue of our time. Without the rapid reduction of carbon emissions, it will become increasingly difficult, if not impossible, to avoid catastrophic climate effects that radically alter our way of life. The financial impact alone will be immense.
We recognise that climate change is not only important to us but to our clients and members too. Our corporate pledge and commitment is to be net zero by 2040 and within our Futurewise strategy our aim is to be net zero by 2050 with the aim of halving emissions by 2030.Our approach to managing climate risk
Sustainable Investing and FutureWise
FutureWise is our default investment strategy, which is provided and managed by Fidelity for UK based Pension schemes.
FutureWise is a lifestyle strategy that invests members’ money over a broad range of investments across several different markets in the UK and abroad. FutureWise does this using specific investment funds that we have designed to give members exposure to assets such as equities (shares) and bonds. It moves their money between these funds as they get closer to retirement, balancing the potential for growth and the risk of investments falling in value. FutureWise does not target a specific outcome at retirement (such as purchasing an annuity) but is designed for all the options available to members when they choose to access their money.
The funds used in FutureWise are currently managed by Fidelity and BlackRock, who have both signed the PRI and in 2019 received their A+ rating for ESG strategy and governance. You can read more about how Fidelity and BlackRock approach sustainable investing, and how they engage with the companies they invest in, here:
Please note that the Investment Manager’s focus on investing in companies which maintain strong environmental, social and governance (ESG) credentials may result in a return that at times compares unfavourably to similar funds without such focus. No representation or warranty is made with respect to the fairness, accuracy or completeness of such credentials. The status of a fund’s ESG credentials can change over time. Past performance is not a reliable indicator of future returns.