ESG – actions speak louder than words


Adam Ruddle, September 2021

More people are thinking seriously about their impact on global climate change and sustainability challenges through the investment of their pension savings. Senior Investment Manager, Adam Ruddle, explores how we’re taking this demand seriously through the integration of ESG principles within the investment strategy of our Smoothed Managed Funds. 

ESG funds are firmly in the spotlight at the moment.

With a surge of new and revamped ESG funds launching in recent months, you would be forgiven for thinking that it is only a passing fad for investors.

But more people are thinking seriously about their impact on global climate change and sustainability challenges through the investment of their pension savings. Research from the LV= Wealth and Wellbeing Monitor found that 26% of mass affluent savers plan to be more environmentally conscious over the next year.

For LV=, being increasingly aware of environmental, social and governance aims has always been integral to our investment strategy. ESG principles have been well integrated across LV= portfolios since 2011, long before it became mainstream. We have worked hard over the last year to develop the LV= Responsible Investment Framework as part of our sustainable investment strategy.

In 2020, only 0.1% of equity assets in our main with-profits fund and our three Smoothed Managed Funds were invested in companies with at least 25% revenue generated from coal use, production or extraction.

The ‘G’ in ESG is often forgotten

ESG extends further than just climate change concerns, as investments are in line with the UN 2030 Sustainability Goals to promote environmental, social and governance criteria. Although these themes are much interconnected, the ‘G’ in ESG is the glue that holds everything together, ensuring that any environmental and social promises made are kept.  We are committed to good corporate governance and our performance here is strong. The LV= Investment Committee continually monitors for any ESG concerns and decides when to exclude or engage with firms to drive positive change.

Strong returns should not be sacrificed for sustainability

Another misconception is that you can only have sustainability by sacrificing strong investment returns. Our experience with LV= Smoothed Managed Funds has proved otherwise. From the Growth to even the Cautious option of our Smoothed Managed Pensions and ISA, our award-winning ESG enhanced investment strategy delivered double-digit growth in one year.

Over the first half of the year, as part of our improved responsible investment strategy, LV= invested in two sustainable equity funds designed to optimise returns, whilst supporting the UN Sustainability Goals 2030. Having an asset manager with a rigorous investment process in place is a clear advantage. Coupled up with our own stringent mandate, this provides a double filter that has resulted in a strong performance overall.

Walking the walk as an ESG investor

Ultimately, we recognise that ESG marks a necessary cultural shift as IPCC warnings indicate that global warming could reach 1.5°C in 30 years. But in some form, many investors had slowly factored in these concerns as part of their own approach. The investment requirements of customers and advisers have evolved over time, so we must be proactive in offering competitive options. The LV= Smoothed Managed Fund (SMF) range saw a dramatic increase in market share for the first half of 2021, experiencing strong inflows. Our SMF range has a strong track record of low volatility investment performance so investors need not compromise on their ideals.

LV= takes seriously the issues of sustainability and the environment, championing many environmental and social initiatives on a corporate level by working with social enterprise suppliers that address pressing global issues. We currently recycle 96% of all waste from the LV= offices, resulting in 700 tonnes of waste not going to landfill every year. The LV= Green Heart Support initiative continues to help customers who are dealing with extraordinary circumstances.

The UN Sustainable Development Goals align strongly with the LV= Green Heart ethos. In recent years we have strengthened our investment framework, giving customers greater peace of mind about where their pensions and savings are invested.