Responsible investment

FAQs

• How does HL integrate ESG into its fund selection process?

  We meet all the fund managers we invest with, and a number of others, at least once a year, or more frequently where required. ESG has naturally become a bigger part of those conversations over the years. Following each fund manager meeting, we consider whether the manager is fully taking account of the ESG risks applicable to their portfolio, and if they’re supported to do so by the fund group they work for. We communicate our views to investors through our fund updates.

  See our fund research

  As a signatory of the United Nations-backed Principles for Responsible Investment, we understand the importance of good stewardship and upholding the standards of responsible investing. Our ESG Investment Policy and Stewardship and Engagement Policy outline how we embed ESG into our investment analysis and decision-making processes.

  Read our ESG Investment Policy

  Read our Stewardship and Engagement Policy

• How does HL engage with companies and fund managers?

  Engagement is central to our stewardship efforts, facilitating a deeper understanding of the material risks and opportunities inherent in the companies and funds we invest in. We conduct ESG risk monitoring across all investment solutions, ensuring adherence to our ESG Investment Policy. If deficiencies are identified as a result of this monitoring, we’ll engage with the appropriate party.

  We also carry out thematic engagement covering three core areas: climate change, sustaining positive community relations, and fair remuneration. Where relevant, we also participate in collective engagement initiatives to leverage our influence for greater impact.

  Finally, we engage on issues our clients tell us they are passionate about. Our recent ESG investor survey found that HL clients care deeply about deforestation, so we’ve prioritised this topic. More detail on our approach to engagement, as well as engagement case studies, can be found in our Stewardship & Engagement Report.

• Will investing responsibly impact returns?

  We don’t think there’s anything inherent about any of the responsible investment approaches that will lead to worse performance than more conventional investments over time. As ever, if you’re investing in a fund, it’s important to invest your money with skilled fund managers who have delivered for investors over the long term.

  Some of the responsible investment approaches will cause performance to differ from more conventional investments though. For example, if you exclude areas like oil & gas and tobacco, which are big parts of the UK stock market, your investments could underperform when those areas do well, but do well in comparison to the market when those areas suffer a setback.

• What is greenwashing? How can it be avoided?

  Investors increasingly want to know their money is being managed in a responsible way. This has led some fund managers and companies to cut corners and overstate the progress they've made at integrating ESG. But there are several things you can do to make sure those you invest with are walking the walk, as well as talking the talk.

  Firstly, if you’re investing in funds, check the fund house your fund manager works for is signed up to industry initiatives, such as the UN-backed Principles for Responsible Investment (PRI). When firms sign up to the PRI, they make a commitment to invest responsibly, incorporate ESG issues into their investment analysis and decision-making processes, and to develop their approach over time. Just visit the PRI website and search the name of a fund house to see if it's signed up.

  Many firms produce a Responsible Investment, ESG or Sustainability report, which you'll find on their websites. Assessing the depth and granularity of these reports can be a great way to check if a company is fully embracing ESG.

  Finally, look for third-party endorsement. Those who’ve made the most progress may receive recognition for their efforts, such as awards, or fund managers may be asked to provide commentary on their approach in the financial press.

  When selecting funds for inclusion on the Wealth Shortlist, we use a mixture of these approaches, combining them with insights gleaned from fund manager meetings, third party data sources and our own proprietary analysis tools.

• What is SDR?

  The Sustainability Disclosure Requirements (SDR) are a package of regulations introduced by the Financial Conduct Authority to stamp out greenwashing and make it easier for investors to find sustainable funds that meet their requirements.

  It includes an anti-greenwashing rule, which clarifies that the sustainability-related claims made by firms must be fair, clear and not misleading. It also tightens the rules governing how funds can use sustainability-related terms in their names and marketing.

  The regulation introduces four new fund labels: Sustainability Focus, Sustainability Improvers, Sustainability Impact and Sustainability Mixed Goals. Only funds with a label are allowed to use the term ‘sustainability’, or any variation of that word, in their names, and only Sustainability Impact funds can use the term impact.

  There are a number of criteria funds must meet in order to use a label. For example, to use any of the four labels, at least 70% of the fund must be invested in line with the sustainability objective. Labelled funds must also make a series of disclosures to help investors understand and compare their sustainability characteristics.

  It's important to note that overseas funds are not subject to SDR, but the FCA is working to include them within the scope of the regulation. Our fund factsheets specify when funds aren't covered by SDR.

  Read more about SDR