Our Governed Retirement Income Portfolios (GRIPs) are designed for customers who are looking to take a regular income.
They come with the same expert governance and automatic updates that the Governed Portfolios benefit from to help keep the portfolios on track.
There are five Governed Retirement Income Portfolios to choose from depending on the client's attitude to risk.
They are based on sensible risk targets which take account of the level of risk required to achieve a particular level of income.
Each portfolio invests in a mix of equities, high yield bonds, corporate bonds, index linked gilts and property managed by Royal London Asset Management.
Benchmark asset allocations are shown below (click to enlarge):
If you’re thinking of recommending a ready-made solution from our Governed Range to a client, the following content is designed to strengthen your suitability and due diligence process.
Ryan Medlock, Senior Investment Development Manager at Royal London, outlines how responsible practices are applied across the range of investment portfolios and strategies that make up our Governed Range. He also sets out how Royal London Asset Management (RLAM), acting as our asset manager, influence companies to improve their environment and social performance.
Hello everybody, this is Jake Moeller, and I am a Senior Investment Consultant at Square Mile Research.
We at Square Mile are very excited to be working with Royal London on this project which consists of a series of educational videos designed to help advisers debunk the confusing jargon in this space and accelerate the adoption of a common set.
In this video, we focus on the area of responsible practices and how Royal London is applying this approach within its investment processes. At Square Mile we define responsible practices or a responsible practice fund as one that considers the operational practices of the companies in which they invest and supports best practice, as well as encouraging them to improve their environmental and social performance.
I am delighted to be joined by Ryan Medlock, Senior Investment Development Manager at Royal London, to discuss this further.
Hi Jake, pleasure to be here.
Can you outline the objectives of the Governed Range for us, does it have an explicit reference to investing in securities that demonstrate responsible business practices?
The objective of the Governed Range remains fully focused on delivering financial returns, so that being above inflation growth over the long run, consistent with a target level volatility. So, nothing has changed in that regard. However, we do believe that to achieve that broad objective you need to consider ESG factors. As we know the Governed Range is multi asset, it's incredibly well diversified and you've got various underlying building blocks, each with individual objectives. The range is very deliberate in design and how we take those ESG factors into account varies across those different building blocks and different strategies.
To give a few examples, if we look in the equity portion of the Governed Range, there's different strategies being adopted within the regional equity strategies. You’ve got our emerging market tracker fund that only invests in ESG leaders and then in terms of our developed market passives, we've just made some amendments to incorporate ESG factors in a more meaningful way. This has involved tilting exposure away from the largest carbon polluters towards those companies with stronger credentials, and that's within this risk control framework that we operate within the Governed Range.
That particular change represents a shift away from traditional market cap weighted passives and is very much about taking action today. We’re very much of the view that this is the decade of action, and I think examples like this will help us achieve our goals to become net zero by 2050.
And what is the definition of responsible investment that you're applying to the range?
To achieve the broad objectives that are set within the Governed Range I just mentioned there, we think it's of absolute importance that ESG factors are taken into account and that of course we remain committed to both acting and investing responsibly. We do that through a combination of ESG integration techniques, so I could just explain looking at the different building blocks, looking at the different strategies, but we also do it through active ownership. Royal London Asset Management will actively exercise their rights through voting, and they'll engage with the companies they invest in to influence positive change. There’s also a number of exclusions applied across the Governed Range and I'm sure we'll get to talk about those shortly. In summary, we have a range of Responsible investment approaches which are applied.
Is there a clear research and materiality framework in place, and if so, how is adherence to this framework monitored?
As an asset owner we expect all of the asset managers who manage our customers money to understand the importance and impact of ESG factors. We’ve established a very robust Responsible investment monitoring framework which covers all of the asset managers that we work with and as part of this framework, we actually have quarterly calls with the managers to better understand their responsible investment processes now.
In terms of the Governed Range, these assets are managed by Royal London Asset Management. Royal London Asset Management are given the same level of scrutiny as any of the other asset managers that we work with. We have quarterly meetings specifically to discuss Responsible investment processes, we use our due diligence processes to assign them a specific Responsible investment score, and we also receive regular updates from them on the various stewardship activities that we undertake.
And are there any ethical exclusions applied to the fund and, and if so, what are they?
We have a range of exclusions which are applied at a firm wide level. An example of that is controversial weapons, so there will be no exposure to companies involved in controversial weapons right across the Royal London spectrum. That applies to all Royal London managed assets.
Within the Governed Range specifically, within the cache bucket of the portfolios, we've got a couple of cash strategies there. Those strategies will exclude any company which generates more than 10% of its revenue from tobacco, armaments, and fossil fuel extraction. That said, our strong preference to address ESG risks is through engagement rather than to simply exclude, and I think it's quite important to strike the right balance in that context.
You've mentioned engagement, how do the fund managers evidence this? And the stewardship activities and the outcomes of these?
That’s a really important point, and this is an area that we feel we are incredibly transparent in. Royal London Asset Management publish an annual stewardship and Responsible investment report. This report covers all the investment teams within Royal London Asset Management, including the teams that manage the assets within the Governed Range and it will detail how they integrate ESG factors into their processors and decisions. The report also details the various engagement and stewardship activities which Royal London Asset Management undertake and it's available freely on their website.
In addition to that, all their voting activity is published on a quarterly basis separately and again, we think that level of transparency is absolutely essential. We try and make all of this more meaningful for both advisors and our customers by publishing a range of case studies on our website and across our various marketing.
On the that report, are you able to illustrate, perhaps with a couple of case studies on the on the holdings?
There’s a range of case studies in the report, on our adviser site and they're also published on our customer website. A recent example is the work that Royal London Asset Management did with Scottish and Southern Energy, SSE. SSE is an energy utility company and they've actually committed to becoming net zero by 2050. However, through collective engagement with Royal London Asset Management and others, SSE agreed to actually go further than that, and then they've published a formal energy transition strategy. This is all about explaining how they will manage social risks through the energy transition. By signing up to that strategy, they became the first company globally to do so, so I think that's a great example of how engagement can lead to positive outcomes.
There are obviously other case studies available as well in that report and across the websites including Adidas, Amazon, and Metro Bank. Within the stewardship and Responsible investment report, the first one of those was published in 2013, and that has a very extensive overview on the range of Royal London Asset Management engagement and voting activities.
Is there any third-party validation of the funds process or philosophy?
We’ve drawn on a range of third-party and independent views in terms of our investment processes and philosophy. A couple of years ago, we commissioned EY to perform a Responsible investment benchmarking exercise. That exercise was relative to our peers, and it really assessed our approach to Responsible investment as both an asset owner and as an asset manager. So that was an incredibly important piece of work.
We've got our Investment Advisory Committee, so that framework provides an ongoing formal review process. There are actually two independent experts on that committee, Candy Kingston, who is the chair of that committee, and JB Beckett, so individuals will be recognised to many across the industry. The Investment Advisory Committee meet on a quarterly basis to review the Governed Range and they're basically ensuring that our customers’ best interests remain at the heart of all the processes. It’s effectively a more formal mechanism to ensure that we're always acting on our promise.
In addition to that, EKG the consulting actuaries assessed the governance structure and processes underpinning the Governed Range, and again those reports are available on our website.
At Square Mile, when we review Responsible investments, we're keen to get our heads around the resources and the support available to the fund managers and analysts. For example, what sort of external data systems or internal research do you use or a responsible investment team?
First and foremost, Royal London Asset Management has a dedicated Responsible investment team. This team works with and alongside the various investment teams, and they're there to help them ensure that ESG issues are included in their processes and decisions. That Responsible investment team includes nine governance and Responsible investment experts. To add a bit of colour in terms of the scale of the work that they undertake, if we look at 2020 in isolation, there was 413 company engagements carried out over that calendar year, which was a 59% increase on the previous year, as well as an 85% increase in in voting activity on the year as well. So, some really solid pieces of work which are carried out by that team.
From an asset owner point of view, we obviously have a very robust, Responsible investment oversight framework in place and that does help form a number of our decisions that we make. As part of that framework, we have quarterly meetings with the asset managers to specifically to discuss Responsible investment activity, as well as this adoption of a Responsible investment specific due diligence process, which is ultimately becoming embedded within our standard processes.
Another thing we look for as well as his advocacy and initiatives is the asset manager a signatory to the any of the responsible investment initiatives? For example, the UN PRI, the UN Global Compact or any of these.
Royal London Asset Management actively participate in a number of Responsible investment initiatives. That that ranges from the UN PRI, the UK Stewardship Code, the Task Force for Climate Related Financial Disclosures and also the Investment Association Sustainable and Responsible Investment Committee. A range of initiatives that we proactively engage with there. In terms of the UN PRI, Royal London Asset Management became a signatory to this initiative back in 2008, and they were also early adopters of the 2020 UK Stewardship Code when that was released in October 2019.
From an asset owner point of view, again, we became founding signatories to the Institutional Investors Group on climate change, or the IIGCC for short, and then net zero investment framework that was launched in March 2021. Being a signatory to that framework commits us to align our investments to net zero by 2050, and that's through both decarbonizing our investment portfolios and increasing investments in climate solutions going forward as well.
A good number of initiatives there and has the asset manager or the range received a rating? If so, is the rating and the report available for public viewing, perhaps on a website.
Absolutely, if we look at last year, 2020, Royal London Asset Management received an A Plus in three of the eight modules required from the UN PRI. So we received an A plus in strategy and governance, and the other five modules were actually awarded an A. A fantastic set of scores and I think that's really testament to Royal London Asset Management’s continued efforts to become a leader in Responsible investment. That 2020 assessment report from the UN PRI sits on the Royal London Asset Management website ad I would encourage anyone in the advice community to use those UN PRI assessment reports within their responsible investment due diligence processes as they are great tool to benchmark manager performance specifically on Responsible investment.
Ryan, some fantastic insights there and we really appreciate you joining us and answering those questions in plain English, which I think were very helpful.
No problem, it's been a pleasure, Jake.
I've been joined here by Ryan Medlock, Senior Investment Development Manager at Royal London. Thanks for listening. We hope that you found this video useful and informative.
The following reports show how RLAM help us to fulfil our responsible investment and stewardship responsibilities.
We’re a member of the United Nations Principles of Responsible Investment (UN PRI). This set of six principles, developed by a network of international investors, reflect the view that the integration of environmental, social and corporate governance issues into investment management can have a positive impact on investment performance.
RLAM are also a signatory to these principles and incorporate them into their investment process and decision making.
Read RLAM’s RI Transparency Report 2020 for more information.
To help support your responsible investment due diligence processes, you can also read the UN PRI assessment report. This sets out how the UN PRI grade RLAM, based on their transparency report submission.
To understand more about RLAM's approach to stewardship, including how and why they engage with companies and integrate ESG considerations into their investment decisions, you can read their Stewardship and responsible investment 2021 report.