Scottish Widows is to divest at least £440 million from companies that have failed to meet its environmental, social and governance (ESG) standards.

Widows warned this figure could grow much further “if companies do not take action to improve the sustainability of their business practices.”

The wide-ranging policy will cover both Scottish Widows’ investment, life and pension funds and the insurer’s own investments, with plans to extend to external pooled funds in the future.

The move is believed to be the most far-reaching exclusions policy by a major pensions provider.

The insurer is working with its fund manager partners to begin divesting from firms “that pose the most severe investment risk due to the nature of their businesses.” 

Scottish Widows said its new exclusions policy targets companies “which derive more than 10% of their revenue from thermal coal and tar sands, manufacturers of controversial weapons and violators of the UN Global Compact (UNGC) on human rights, labour, environment and corruption- unless the size and type of investment means that the insurer can influence positive change in their business models.”

These exclusions will be applied across the group’s life, pension and OEIC funds — including its flagship workplace default — and will apply to index trackers as well as its own active funds.

Maria Nazarova-Doyle, Head of Pension Investments at Scottish Widows, said: “As a large institutional investor, we have a vital role to play in shielding our customers from ESG investment risks, as well as influencing positive change through the investments we hold.

“Our exclusions focus on companies we believe pose the most severe investment risk due to the nature oftheir businesses, which can’t be addressed through engagement.

“The growth of these ‘at risk’ companies is likely to be severely limited by future regulations and the changing views of customers and investors, leading to significant falls in their share prices.

“We’ve worked hard to implement our exclusions across our fund range without limiting thisinitiative to our actively managed funds. We’re excluding investments from the index trackers which underpin our flagship multi-asset funds too.

“We recognise there’s more we can do as a company and that this is just one step in the journey.

“However, this underlines our commitment of becoming a market leader in responsible investment and to make a real difference.”

The exclusions move follows Scottish Widows’ collaboration with BlackRock to design an innovative fund that integrates ESG considerations into its pension funds.

The ACS Climate Transition World Equity Fund backs businesses that decrease carbon emissions, increase clean technology revenue and display more efficient water and waste management.

The fund also makes significant ESG exclusions.