For full information about our approach to responsible investing, please take a look at our Responsible Investing Approach.
Responsible investment encompasses all Environmental, Social and Governance (ESG) considerations and we continue to diligently enhance our approach to responsible investment. You can view our approach to responsible investing on our website.
In April 2021, a Sustainability Working Group was established with senior leaders from across the business. The focus of the working group is to align our business strategy to sustainable objectives.
There has already been strong progress to strengthen our corporate responsibility aspirations and to take opportunities, where possible, to reduce the carbon footprint of our investments.
In 2021 we invested over £200m in Sustainable Equity Funds. These are designed to align with the UN Sustainable Development Goals. For example, DSM (a company held within the funds) has developed a unique feed additive that reduces methane emissions from cattle by over 30%. During the year it gained its first market authorisation in South America and has received positive feedback in Europe, the step before formal approval.
We continue to develop and enhance our approach to sustainability and will explore further allocations to ESG funds in 2022.
During 2021 a number of our investment decisions were specifically driven by ESG considerations. In some cases, particularly in our equity holdings, we’ve divested from firms who we believe aren’t taking action fast enough to address ESG concerns, for example, a US defence firm who could not demonstrate safe disposal of environmental waste. ESG considerations are firmly embedded in the portfolio construction of our investment funds. This includes our assets backing annuity business where we’re actively restricting new investments into bonds issued by tobacco or energy firms with poor ESG ratings.
We also invest in commercial mortgage loans where ESG outcomes are an important factor in screening new loans for approval. Our approach isn’t just about excluding loans that fail to meet our ESG criteria, it also actively seeks loans with potentially strong ESG outcomes. For example in 2021 we invested in a new loan that gave preferential terms to a firm if it met a set of ambitious ESG objectives.
Focusing specifically on environmental risks and financial risks arising from climate change, the Investment Committee, With-Profits Committee and relevant management committees regularly monitor the carbon footprint of our investments by reviewing metrics covering carbon intensity and carbon emissions. In all of our funds, the carbon intensity and carbon emissions of our investments are lower than the market indices and in some cases, considerably lower, for example, the carbon emissions of our US equity fund are over a third lower than the carbon emissions of the S&P500.
There are a range of other metrics we regularly monitor such as carbon intensity, carbon emissions, controversial name exposure and ESG ratings. We expect to continue to develop a suite of wider ESG metrics to evaluate performance against our responsible investing principles and practices.
Over the next few years we expect to be able to significantly add further information on our management of the financial and non-financial risks arising from climate change to align with the recommendations of the Task-force on Climate-related Financial Disclosures, TCFD.
Columbia Threadneedle Investments
In partnership with our asset manager Columbia Threadneedle Investments (CTI), responsible investing is integrated into all of our investment decisions. We believe that well-governed companies are likely to outperform in the long run and the key to generating sustainable returns is to understand ESG considerations, risks and opportunities.
We regularly monitor ESG ratings provided to us by CTI, along with other external ESG ratings. In our portfolios, our investments typically have stronger ESG ratings than the market indices we use as our benchmarks, such as the S&P500, the FTSE All Share and the MSCI All Country All World Index - and we expect this to continue.
We believe that active ownership is core to responsible investing. On our behalf, CTI use our voting rights to firmly engage with companies around material ESG risks and opportunities. There are some exclusions which are operated across various portfolios. These include a ban on controversial weapon investments and a restriction on tobacco holdings within funds backing our RNPFN business. We believe engagement with investee companies is an effective way to drive positive ESG change and contribute to the long-term success of the global economy. So we aim to use our influence and voting rights to drive positive change and generate strong performance over the long term.