Sustainable Ownership blogs
Our blogs on Sustainable Ownership and environmental, social and governance (ESG) issues will help you learn more about the Scheme's approach to its investments.
9/5/2022
Editorial
<p>With the start of the new financial year, now might be a good time to get to grips with your pension. You may even feel that the time has come for you to take control of the way your money is invested and to make sure the investments are doing good. Either way, you may find it difficult to know where to begin. </p><p>Seeking the answers, we lift the curtain on how we invest your money sustainably with the help of Michael Marshall, Head of Sustainable Ownership at Railpen. From de-mystifying the investment jargon to tips for people who want their investments to do well – Michael explains it all.</p><p> </p><p><strong>Michael, ‘sustainable ownership’ seems to be a common term in many different financial areas. What’s the best way to explain what it is with regards to pensions? </strong></p><p>Firstly, let’s acknowledge that there’s far too much jargon around. Readers might have heard of ‘ESG’, ‘RI’, ‘SRI’, ‘Impact investment’, ‘Ethical Investment’, ‘Sustainable Investment’, ‘Active Ownership’, or some other term. </p><p>At Railpen we use the term ‘Sustainable Ownership’ to describe the work we do to incorporate sustainability into the way we invest and oversee our members’ money. It comprises a range of activities that our sustainable ownership professionals undertake, as we’ll come to later in the blog.</p><p><strong> </strong></p><p><strong>Why do we invest members’ money sustainably? </strong></p><p>Research suggests that when businesses face sustainability challenges, and fail to manage those challenges successfully, they could suffer in a number of ways: customer loss, higher operating costs, regulatory intervention, product recalls, lawsuits, less productive workforce, or loss of social license to operate. </p><p>There’s also evidence to suggest that companies that are well governed are more resilient than poorly governed companies. As investors responsible for other people’s money, it’s important that we identify whether companies are prone to risks that could affect the value of the investment we have made. That’s why we apply our sustainable ownership framework to our investment portfolios.</p><p> </p><p><strong>And, how does Railpen, as the investment manager of the RPS, ensure it invests members’ money sustainably?</strong></p><p>There’s a range of things we do, but I’ll mention just three here. As a quick aside, our work in this area helped us win the Investment & Pensions Europe award for our approach to ESG (environmental, social, and governance issues). <br></p><p data-list="0" data-level="1">(1) Sometimes we choose not to invest in a company, or a set of companies, where we think the sustainability challenges are excessive and where they are unlikely to be well managed. We currently have an exclusion list covering companies that make controversial weapons (such as cluster munitions), thermal coal companies (thermal coal miners and coal power generators), and companies that have shown excessively poor conduct (for example where workforce fatalities have occurred and sufficient remedial steps have not been taken). <br><br>(2) When we are considering whether to invest in a company, a member of our team undertakes sustainable investment analysis to identify the sustainability risks faced by the company, and what the company is doing about them. This analysis in some cases leads to a decision not to invest in a company.<br></p><p data-list="0" data-level="1">(3) As investors we have certain rights at the companies we invest in. This can include the right to ‘engage’ a company – where we meet the company’s board or management to explain our expectations about some particular issue – and the right to vote at company Annual General Meetings (AGMs). These rights enable Railpen to influence companies for the better, and to hold boards and executive management to account. You can find out much more about how we vote in the <a href="https://cdn-suk-railpencom-live-001.azureedge.net/media/media/dlopqu3s/voting-policy_2022.pdf" data-sf-ec-immutable="">Railpen Voting Policy</a> and the <a href="https://vds.issgovernance.com/vds/#/OTI4OQ==/" data-sf-ec-immutable="">vote disclosure portal</a> on the Railpen website. </p><p>That was a heavily condensed version of what we do – interested readers should take a look either at our detailed <a href="https://cdn-suk-railpencom-live-001.azureedge.net/media/media/52lhtclx/stewardship-report-2021.pdf" data-sf-ec-immutable="">Stewardship Report</a>, or our shorter briefing for members which we call the <a href="https://cdn-suk-railpencom-live-001.azureedge.net/media/media/v5fbm4vu/railpen-sustainable-ownership-review-2020.pdf" data-sf-ec-immutable="">Sustainable Ownership Review</a>. </p><p> </p><p><strong>Many members choose a ‘hands off’ approach and leave it to Railpen to decide where to invest their money. How do you decide where to invest? </strong></p><p>As I mentioned above, we have some exclusion lists that tell us where not to invest, and we undertake sustainability analysis of the companies we do invest in to avoid companies that might face sustainability challenges or have poor corporate governance. </p><p>Beyond that, our portfolio managers seek to exploit investment themes, and one very powerful theme is the climate transition. As the global economy decarbonises over the coming decades, this is likely to produce an array of investment opportunities. We were an early starter here. </p><p>We started to integrate climate change into our investment decision-making process in 2016. Two years later, we signed the Global Investor Statement on Climate Change, supporting The Paris Agreement's goal of keeping global temperature rise below 2˚c. We decided to vote against companies which lack climate expertise, and auditors and companies who ignore the impact of climate change on their financial accounts. In 2020, we published our <a href="https://cdn-suk-railpencom-live-001.azureedge.net/media/media/inhpqhuj/so-climate-related-disclosure-report_2020.pdf" data-sf-ec-immutable="">Climate-Related Disclosure</a> which tells you exactly how our plans on climate change are going.</p><p><strong> </strong></p><p><strong>What options do we have for members who want to be involved in the process and want to make sure their pension money is invested sustainably? </strong></p><p>Members paying into Defined Contribution arrangements are invested in funds that are managed either directly by Railpen, or by another underlying fund manager that has been carefully chosen by Railpen. </p><p>When Railpen is managing the investments directly, we apply our sustainable ownership framework, which we think leads to a portfolio of investments with strong sustainability characteristics - a portfolio our members can be proud of. </p><p>When an external party is the underlying investment manager, they will have had to meet Railpen’s sustainability standards in order to be appointed, and these standards need to be maintained through the manager’s tenure. </p><p>For example, Railpen has published a <a href="https://cdn-suk-railpencom-live-001.azureedge.net/media/media/dyiflcd5/railpen-net-zero-plan_2020.pdf" data-sf-ec-immutable="">Net Zero Plan</a> – a roadmap outlining how we intend to get to net zero GHG emissions by 2050 or sooner. We also require external investment managers to sign up to this too. </p><p>As a result, we believe the line-up of investment options available to members are well aligned with robust sustainable outcomes. </p><p>There’s loads of really useful information, clearly laid out in the <a href="3D6DC2A3-467E-4ADE-9F2C-C19BA2652B4E">Paying into IWDC</a> section of the website. <a href="https://member.railwayspensions.co.uk/in-the-scheme/paying-into-iwdc/invest-in-your-future" data-sf-ec-immutable=""></a></p><p> </p><p><strong>Lately, we’ve been hearing more and more about ‘greenwashing’ and companies overstating their credentials when it comes to investing sustainably. Can you explain what this means?</strong></p><p>Greenwashing is when companies claim to be doing ‘good’ things when in fact they’re not, or exaggerating the good that they actually do, or use diversion tactics to distract their stakeholders from important sustainability issues. </p><p>When we analyse or engage a company we aim to see through greenwashing by drawing on independent sources of information, comparing and contrasting several sources, using “materiality maps” to make sure we’re focussed on the issues that matter, and cross referencing companies with their competitors to get a side by side comparison. </p><p>We also develop common assessment frameworks that allow us to verify a company’s claims – such as their claims to be aligned with ‘net zero’ – against a robust set of criteria. </p><p> </p><p><strong>Michael, what would you say to all members of the RPS who have some or all of their pension invested on their behalf? </strong></p><p>We feel privileged to have the responsibility for supporting so many RPS members to achieve their long- term financial goals. We invest solely for our members, and aim to deliver sustainable returns in support of Railpen’s purpose: to secure our members’ futures.</p><p> </p><p><strong>And finally, what tips would you give to newbies who want their investments to do well but also to ensure their money is used to address environmental, social and governance (ESG) issues?</strong></p><p>Firstly, investors are required to produce substantial amounts of information each year on ESG issues, so look out for that, read it, and get in touch with us if you’d like to know more. </p><p>Secondly, use the mechanisms available to engage with Railpen. We often conduct member surveys and focus groups on sustainability topics. If you’re interested, express an interest in taking part by joining our <a href="/knowledge-hub/news-and-views/platform">member advisory group Platform</a>.</p><p>Thirdly, have patience. Sustainability is all about the long term. Good sustainable investments might prove themselves over several years rather than being overnight winners. The same is true for companies that are starting from a low base, but have a plan to transition towards sustainability. It is our experience that patience often pays off, whilst short termism can be an ineffective strategy. </p>
<p>With the start of the new financial year, now might be a good time to get to grips with your pension. You may even feel that the time has come for you to take control of the way your money is invested and to make sure the investments are doing good. Either way, you may find it difficult to know where to begin. </p><p>Seeking the answers, we lift the curtain on how we invest your money sustainably with the help of Michael Marshall, Head of Sustainable Ownership at Railpen. From de-mystifying the investment jargon to tips for people who want their investments to do well – Michael explains it all.</p><p> </p><p><strong>Michael, ‘sustainable ownership’ seems to be a common term in many different financial areas. What’s the best way to explain what it is with regards to pensions? </strong></p><p>Firstly, let’s acknowledge that there’s far too much jargon around. Readers might have heard of ‘ESG’, ‘RI’, ‘SRI’, ‘Impact investment’, ‘Ethical Investment’, ‘Sustainable Investment’, ‘Active Ownership’, or some other term. </p><p>At Railpen we use the term ‘Sustainable Ownership’ to describe the work we do to incorporate sustainability into the way we invest and oversee our members’ money. It comprises a range of activities that our sustainable ownership professionals undertake, as we’ll come to later in the blog.</p><p><strong> </strong></p><p><strong>Why do we invest members’ money sustainably? </strong></p><p>Research suggests that when businesses face sustainability challenges, and fail to manage those challenges successfully, they could suffer in a number of ways: customer loss, higher operating costs, regulatory intervention, product recalls, lawsuits, less productive workforce, or loss of social license to operate. </p><p>There’s also evidence to suggest that companies that are well governed are more resilient than poorly governed companies. As investors responsible for other people’s money, it’s important that we identify whether companies are prone to risks that could affect the value of the investment we have made. That’s why we apply our sustainable ownership framework to our investment portfolios.</p><p> </p><p><strong>And, how does Railpen, as the investment manager of the RPS, ensure it invests members’ money sustainably?</strong></p><p>There’s a range of things we do, but I’ll mention just three here. As a quick aside, our work in this area helped us win the Investment & Pensions Europe award for our approach to ESG (environmental, social, and governance issues). <br></p><p data-list="0" data-level="1">(1) Sometimes we choose not to invest in a company, or a set of companies, where we think the sustainability challenges are excessive and where they are unlikely to be well managed. We currently have an exclusion list covering companies that make controversial weapons (such as cluster munitions), thermal coal companies (thermal coal miners and coal power generators), and companies that have shown excessively poor conduct (for example where workforce fatalities have occurred and sufficient remedial steps have not been taken). <br><br>(2) When we are considering whether to invest in a company, a member of our team undertakes sustainable investment analysis to identify the sustainability risks faced by the company, and what the company is doing about them. This analysis in some cases leads to a decision not to invest in a company.<br></p><p data-list="0" data-level="1">(3) As investors we have certain rights at the companies we invest in. This can include the right to ‘engage’ a company – where we meet the company’s board or management to explain our expectations about some particular issue – and the right to vote at company Annual General Meetings (AGMs). These rights enable Railpen to influence companies for the better, and to hold boards and executive management to account. You can find out much more about how we vote in the <a href="https://cdn-suk-railpencom-live-001.azureedge.net/media/media/dlopqu3s/voting-policy_2022.pdf" data-sf-ec-immutable="">Railpen Voting Policy</a> and the <a href="https://vds.issgovernance.com/vds/#/OTI4OQ==/" data-sf-ec-immutable="">vote disclosure portal</a> on the Railpen website. </p><p>That was a heavily condensed version of what we do – interested readers should take a look either at our detailed <a href="https://cdn-suk-railpencom-live-001.azureedge.net/media/media/52lhtclx/stewardship-report-2021.pdf" data-sf-ec-immutable="">Stewardship Report</a>, or our shorter briefing for members which we call the <a href="https://cdn-suk-railpencom-live-001.azureedge.net/media/media/v5fbm4vu/railpen-sustainable-ownership-review-2020.pdf" data-sf-ec-immutable="">Sustainable Ownership Review</a>. </p><p> </p><p><strong>Many members choose a ‘hands off’ approach and leave it to Railpen to decide where to invest their money. How do you decide where to invest? </strong></p><p>As I mentioned above, we have some exclusion lists that tell us where not to invest, and we undertake sustainability analysis of the companies we do invest in to avoid companies that might face sustainability challenges or have poor corporate governance. </p><p>Beyond that, our portfolio managers seek to exploit investment themes, and one very powerful theme is the climate transition. As the global economy decarbonises over the coming decades, this is likely to produce an array of investment opportunities. We were an early starter here. </p><p>We started to integrate climate change into our investment decision-making process in 2016. Two years later, we signed the Global Investor Statement on Climate Change, supporting The Paris Agreement's goal of keeping global temperature rise below 2˚c. We decided to vote against companies which lack climate expertise, and auditors and companies who ignore the impact of climate change on their financial accounts. In 2020, we published our <a href="https://cdn-suk-railpencom-live-001.azureedge.net/media/media/inhpqhuj/so-climate-related-disclosure-report_2020.pdf" data-sf-ec-immutable="">Climate-Related Disclosure</a> which tells you exactly how our plans on climate change are going.</p><p><strong> </strong></p><p><strong>What options do we have for members who want to be involved in the process and want to make sure their pension money is invested sustainably? </strong></p><p>Members paying into Defined Contribution arrangements are invested in funds that are managed either directly by Railpen, or by another underlying fund manager that has been carefully chosen by Railpen. </p><p>When Railpen is managing the investments directly, we apply our sustainable ownership framework, which we think leads to a portfolio of investments with strong sustainability characteristics - a portfolio our members can be proud of. </p><p>When an external party is the underlying investment manager, they will have had to meet Railpen’s sustainability standards in order to be appointed, and these standards need to be maintained through the manager’s tenure. </p><p>For example, Railpen has published a <a href="https://cdn-suk-railpencom-live-001.azureedge.net/media/media/dyiflcd5/railpen-net-zero-plan_2020.pdf" data-sf-ec-immutable="">Net Zero Plan</a> – a roadmap outlining how we intend to get to net zero GHG emissions by 2050 or sooner. We also require external investment managers to sign up to this too. </p><p>As a result, we believe the line-up of investment options available to members are well aligned with robust sustainable outcomes. </p><p>There’s loads of really useful information, clearly laid out in the <a href="3D6DC2A3-467E-4ADE-9F2C-C19BA2652B4E">Paying into IWDC</a> section of the website. <a href="https://member.railwayspensions.co.uk/in-the-scheme/paying-into-iwdc/invest-in-your-future" data-sf-ec-immutable=""></a></p><p> </p><p><strong>Lately, we’ve been hearing more and more about ‘greenwashing’ and companies overstating their credentials when it comes to investing sustainably. Can you explain what this means?</strong></p><p>Greenwashing is when companies claim to be doing ‘good’ things when in fact they’re not, or exaggerating the good that they actually do, or use diversion tactics to distract their stakeholders from important sustainability issues. </p><p>When we analyse or engage a company we aim to see through greenwashing by drawing on independent sources of information, comparing and contrasting several sources, using “materiality maps” to make sure we’re focussed on the issues that matter, and cross referencing companies with their competitors to get a side by side comparison. </p><p>We also develop common assessment frameworks that allow us to verify a company’s claims – such as their claims to be aligned with ‘net zero’ – against a robust set of criteria. </p><p> </p><p><strong>Michael, what would you say to all members of the RPS who have some or all of their pension invested on their behalf? </strong></p><p>We feel privileged to have the responsibility for supporting so many RPS members to achieve their long- term financial goals. We invest solely for our members, and aim to deliver sustainable returns in support of Railpen’s purpose: to secure our members’ futures.</p><p> </p><p><strong>And finally, what tips would you give to newbies who want their investments to do well but also to ensure their money is used to address environmental, social and governance (ESG) issues?</strong></p><p>Firstly, investors are required to produce substantial amounts of information each year on ESG issues, so look out for that, read it, and get in touch with us if you’d like to know more. </p><p>Secondly, use the mechanisms available to engage with Railpen. We often conduct member surveys and focus groups on sustainability topics. If you’re interested, express an interest in taking part by joining our <a href="/knowledge-hub/news-and-views/platform">member advisory group Platform</a>.</p><p>Thirdly, have patience. Sustainability is all about the long term. Good sustainable investments might prove themselves over several years rather than being overnight winners. The same is true for companies that are starting from a low base, but have a plan to transition towards sustainability. It is our experience that patience often pays off, whilst short termism can be an ineffective strategy. </p>
Blog
Sustainable Ownership de-mystified
Learn more about how we manage your money sustainably and get to grips with terms, such as ‘Sustainable Ownership’ and ‘ESG’.
With the start of the new financial year, now might be a good time to get to grips with your pension. You may even feel that the time has come for you to take control of the way your money is invested and to make sure the investments are doing good. Either way, you may find it difficult to know where to begin.
Seeking the answers, we lift the curtain on how we invest your money sustainably with the help of Michael Marshall, Head of Sustainable Ownership at Railpen. From de-mystifying the investment jargon to tips for people who want their investments to do well – Michael explains it all.
Michael, ‘sustainable ownership’ seems to be a common term in many different financial areas. What’s the best way to explain what it is with regards to pensions?
Firstly, let’s acknowledge that there’s far too much jargon around. Readers might have heard of ‘ESG’, ‘RI’, ‘SRI’, ‘Impact investment’, ‘Ethical Investment’, ‘Sustainable Investment’, ‘Active Ownership’, or some other term.
At Railpen we use the term ‘Sustainable Ownership’ to describe the work we do to incorporate sustainability into the way we invest and oversee our members’ money. It comprises a range of activities that our sustainable ownership professionals undertake, as we’ll come to later in the blog.
Why do we invest members’ money sustainably?
Research suggests that when businesses face sustainability challenges, and fail to manage those challenges successfully, they could suffer in a number of ways: customer loss, higher operating costs, regulatory intervention, product recalls, lawsuits, less productive workforce, or loss of social license to operate.
There’s also evidence to suggest that companies that are well governed are more resilient than poorly governed companies. As investors responsible for other people’s money, it’s important that we identify whether companies are prone to risks that could affect the value of the investment we have made. That’s why we apply our sustainable ownership framework to our investment portfolios.
And, how does Railpen, as the investment manager of the RPS, ensure it invests members’ money sustainably?
There’s a range of things we do, but I’ll mention just three here. As a quick aside, our work in this area helped us win the Investment & Pensions Europe award for our approach to ESG (environmental, social, and governance issues).
(1) Sometimes we choose not to invest in a company, or a set of companies, where we think the sustainability challenges are excessive and where they are unlikely to be well managed. We currently have an exclusion list covering companies that make controversial weapons (such as cluster munitions), thermal coal companies (thermal coal miners and coal power generators), and companies that have shown excessively poor conduct (for example where workforce fatalities have occurred and sufficient remedial steps have not been taken).
(2) When we are considering whether to invest in a company, a member of our team undertakes sustainable investment analysis to identify the sustainability risks faced by the company, and what the company is doing about them. This analysis in some cases leads to a decision not to invest in a company.
(3) As investors we have certain rights at the companies we invest in. This can include the right to ‘engage’ a company – where we meet the company’s board or management to explain our expectations about some particular issue – and the right to vote at company Annual General Meetings (AGMs). These rights enable Railpen to influence companies for the better, and to hold boards and executive management to account. You can find out much more about how we vote in the Railpen Voting Policy and the vote disclosure portal on the Railpen website.
That was a heavily condensed version of what we do – interested readers should take a look either at our detailed Stewardship Report, or our shorter briefing for members which we call the Sustainable Ownership Review.
Many members choose a ‘hands off’ approach and leave it to Railpen to decide where to invest their money. How do you decide where to invest?
As I mentioned above, we have some exclusion lists that tell us where not to invest, and we undertake sustainability analysis of the companies we do invest in to avoid companies that might face sustainability challenges or have poor corporate governance.
Beyond that, our portfolio managers seek to exploit investment themes, and one very powerful theme is the climate transition. As the global economy decarbonises over the coming decades, this is likely to produce an array of investment opportunities. We were an early starter here.
We started to integrate climate change into our investment decision-making process in 2016. Two years later, we signed the Global Investor Statement on Climate Change, supporting The Paris Agreement's goal of keeping global temperature rise below 2˚c. We decided to vote against companies which lack climate expertise, and auditors and companies who ignore the impact of climate change on their financial accounts. In 2020, we published our Climate-Related Disclosure which tells you exactly how our plans on climate change are going.
What options do we have for members who want to be involved in the process and want to make sure their pension money is invested sustainably?
Members paying into Defined Contribution arrangements are invested in funds that are managed either directly by Railpen, or by another underlying fund manager that has been carefully chosen by Railpen.
When Railpen is managing the investments directly, we apply our sustainable ownership framework, which we think leads to a portfolio of investments with strong sustainability characteristics - a portfolio our members can be proud of.
When an external party is the underlying investment manager, they will have had to meet Railpen’s sustainability standards in order to be appointed, and these standards need to be maintained through the manager’s tenure.
For example, Railpen has published a Net Zero Plan – a roadmap outlining how we intend to get to net zero GHG emissions by 2050 or sooner. We also require external investment managers to sign up to this too.
As a result, we believe the line-up of investment options available to members are well aligned with robust sustainable outcomes.
There’s loads of really useful information, clearly laid out in the Paying into IWDC section of the website.
Lately, we’ve been hearing more and more about ‘greenwashing’ and companies overstating their credentials when it comes to investing sustainably. Can you explain what this means?
Greenwashing is when companies claim to be doing ‘good’ things when in fact they’re not, or exaggerating the good that they actually do, or use diversion tactics to distract their stakeholders from important sustainability issues.
When we analyse or engage a company we aim to see through greenwashing by drawing on independent sources of information, comparing and contrasting several sources, using “materiality maps” to make sure we’re focussed on the issues that matter, and cross referencing companies with their competitors to get a side by side comparison.
We also develop common assessment frameworks that allow us to verify a company’s claims – such as their claims to be aligned with ‘net zero’ – against a robust set of criteria.
Michael, what would you say to all members of the RPS who have some or all of their pension invested on their behalf?
We feel privileged to have the responsibility for supporting so many RPS members to achieve their long- term financial goals. We invest solely for our members, and aim to deliver sustainable returns in support of Railpen’s purpose: to secure our members’ futures.
And finally, what tips would you give to newbies who want their investments to do well but also to ensure their money is used to address environmental, social and governance (ESG) issues?
Firstly, investors are required to produce substantial amounts of information each year on ESG issues, so look out for that, read it, and get in touch with us if you’d like to know more.
Secondly, use the mechanisms available to engage with Railpen. We often conduct member surveys and focus groups on sustainability topics. If you’re interested, express an interest in taking part by joining our member advisory group Platform.
Thirdly, have patience. Sustainability is all about the long term. Good sustainable investments might prove themselves over several years rather than being overnight winners. The same is true for companies that are starting from a low base, but have a plan to transition towards sustainability. It is our experience that patience often pays off, whilst short termism can be an ineffective strategy.
