Values-based investing

In these pages, we refer to Standard Life Investments Limited as Standard Life Investments.

Contents 01 Why choose values-based investing?02 A choice of values-based investment funds05 Actively managed values-based investment funds10 Passively managed values-based investment funds

Match your investments to your valuesValues-based investing means you invest in companies and funds aligned to your values; social, environmental or personal.

There are many reasons to consider values-based investment – and lots of choice when you do.

You have lots of options In the past, ethical investing was the only option if you wanted to invest in companies aligned to your values. But this ‘good money’ sector has moved on a lot in recent years – ethical is now just one of many options you can choose from. And many funds focus on a mix of screening criteria and encouraging positive corporate behaviour.

Please remember that the value of your investment can go up or down, and may be worth less than you paid in. Past performance is not a guide to the future.!

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Why choose values-based investing?

To have a say in the issues that affect us allWe’ve all seen what irresponsible company behaviour can do to us personally, our communities, environment and markets. But you have a choice – a powerful way to have your say in these issues.

Today’s variety of values-based investment funds means you can choose to invest in companies that are committed to doing what’s right for society and the environment.

It means finding good investment opportunities The ESG* Investment Team at Standard Life Investments believe that astute companies recognise that contributing positively to employees, the community and society means those companies can be better placed for future growth. On the other hand, those companies that pay no regard to their impacts risk harming both their reputation and ability to generate long-term investor returns. * ESG stands for environmental, social and governance

Standard Life Investments’ definition of the different values-based investment options are outlined in the visual below.

Invests in companies involved in improving the environment.

Invests in companies that aim to achieve a measurable positive social or environmental impact in addition to a financial return.

Sustainable and responsible investment seeks to invest in the most sustainable companies, those that manage their environmental, social and community impacts for the greater good of society.

Tends to follow a moral-based screening process that excludes industries such as tobacco, gambling and armaments, while seeking companies that contribute positively to the environment and society.

ETHICAL

SRI

IMPACTSHARIAH

GREENVALUES-BASED

INVESTING

Today’s choice of values-based investment funds means you can make positive financial decisions that support your values and morals.Amanda Young, Head of Responsible Investment, Standard Life Investments

Derives its principles from Shariah - Islamic law. To comply with Shariah, investment is not allowed to earn interest.

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A choice of values-based investment fundsWe offer a choice of options, including both active and passive funds, to suit your individual financial objectives and your personal values.

In a values-based active fund, managers use research and analysis to ‘actively’ seek out companies which reflect the values of the fund. A values-based passive fund tends to take a more exclusionary approach – simply excluding companies that don’t meet its screening criteria. Active fundsIn our core range, our active ethical funds are managed by Standard Life Investments. Their ESG* Investment Team use research, analysis and engagement with companies to fully understand the social and environmental issues affecting clients’ investments. We also offer a UK social bond fund which was developed by Big Issue Invest in partnership with Columbia Threadneedle Investments.

Passive fundsOur core passive funds are provided by selected external managers Vanguard and HSBC Global Asset Management. These managers have designed funds which offer broad coverage of the market, but exclude investments which don’t meet specific socially responsible or religious principles.

* ESG stands for environmental social and governance

This guide is an introduction to the philosophy and strict criteria behind these funds. You’ll find links to the fund factsheets in the summary table below. You can also find daily fund prices, fund performance information and factsheets at www.standardlife.co.uk/fundsAs well as our core range of values-based funds, customers with an ISA or a Self-Invested Personal Pension (SIPP) can choose from a wider range of funds managed by other well-known ethical and socially responsible investment managers. Visit: www.standardlife.co.uk/funds

Actively managed funds Passively managed funds

The active funds in our core values-based fund range invest in companies selected through rigorous research to assess how they manage environmental and social issues.

The passive funds in our core values-based fund range offer broad market coverage but exclude investments which don’t meet specific socially responsible or religious principles.

Standard Life Ethical Pension Fund (Pension)Read the Fund factsheet

SL Vanguard SRI European Stock Pension Fund (Pension)Read the Fund factsheet

Vanguard SRI European Stock Fund (ISA)Read the Fund factsheet

SL SLI Ethical Corporate Bond Pension Fund (Pension) Read the Fund factsheet

Standard Life Investments Ethical Corporate Bond Fund (ISA)Read the Fund factsheet

SL Vanguard SRI Global Stock Pension Fund (Pension)Read the Fund factsheet

Vanguard SRI Global Stock Fund(ISA)Read the Fund factsheet

SL SLI European Ethical Equity Pension Fund (Pension)Read the Fund factsheet

Standard Life Investments Ethical European Equity Fund (ISA)Read the Fund factsheet

SL HSBC Amanah Global Equity Index Pension Fund (Pension)Read the Fund factsheet

SL SLI UK Ethical Pension Fund (Pension)Read the Fund factsheet

Standard Life Investments UK Ethical Fund (ISA)Read the Fund factsheetSL Threadneedle UK Social Bond Pension Fund (Pension)Read the Fund factsheet

Threadneedle UK Social Bond Fund (ISA)Read the Fund factsheet

The value of investments within the funds can fall as well as rise and is not guaranteed – you may get back less than what you paid in. The funds may use derivatives for the purposes of efficient portfolio management, reduction of risk or to meet their investment objectives if this is permitted and appropriate. The sterling value of overseas assets held in the funds may rise and fall as a result of exchange rate fluctutations.

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With increased media scrutiny and a greater access to information, how companies operate and the impact they have on their customers, employees and communities is under the spotlight. Companies can no longer operate in isolation. As clients become ever more aware, they want to align their investments with their own personal beliefs and values.Amanda Young, Head of Responsible Investment, Standard Life Investments

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Actively managed values-based investment funds

Funds managed by Standard Life Investments

Promoting positive changeStandard Life Investments believes that companies can be a positive force for change on the environment and society as a whole, including their employees, suppliers and customers. They also know that investors want to invest with conviction. That’s why they dedicate significant time and resources to:

¬ formulating ethical investment policies, and

¬ understanding the practices of the companies they invest in.

Following a strict investment criteriaStandard Life Investments recognises that the world faces significant environmental and social challenges.

They offer a number of ethical funds that seek to invest in companies that are supporting the solutions to these challenges and uphold the highest standards of corporate responsibility. The criteria of the funds’ ethical investment policy aim to reflect this.

While they recognise the personal nature of everyone’s ethics, they aim to ensure that the funds are reflective of the wider views of those who invest in them. Standard Life Investments regularly reviews the criteria, both positive and negative, through customer surveys and consultations to ensure they remain relevant and industry leading.

Our active engagement will challenge and encourage companies in which the funds invest to improve their environmental and social performance and practices.Amanda Young, Head of Responsible Investment, Standard Life Investments

The Ethical Funds Advisory Group

Ensures ethical investment policy accurately reflects the views of ethical investors and is followed across the range of ethical funds managed by Standard Life Investments.

The ESG Investment Team

Works closely with all the companies Standard Life Investments invests in to promote best practice standards.

Standard Life Investments’ ESG Investment Team was voted the No 1 Firm in the Extel 2015 Award for Leading UK Asset Management firm for SRI/ESG.

Responsible investment and ethical specialists

ensure the ethical criteria are met.

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¬ have strong relationships within their communities and ensure that their business activities provide positive benefits to the local environment in which they operate.

EmploymentThe ethical funds favour companies that:

¬ have strong labour practices, where employees are valued and treated with respect and dignity

¬ demonstrate strong policies, practices and reporting on issues such as equal opportunities, diversity, freedom of association, right to collective bargaining, training, education, and wellbeing

¬ implement strong safety, health and welfare policies, particularly those involved in hazardous activities.

Anti-bribery and corruptionThe ethical funds favour investment in companies that:

¬ uphold the highest standards of business ethics and demonstrate strong anti-corruption policies including oversight, commitment and anti-corruption practices.

They will seek to invest in companies that:

¬ have adopted and embed a code which encourages employees to follow principles of good business behaviour and positive corporate culture. This code should be publicly available and actively communicated to all employees, suppliers and stakeholders.

Positive criteriaUsing positive criteria, Standard Life Investments’ ethical funds favour companies that are involved in activities that benefit society and the environment. They use the UN Global Compact to define the four areas where they seek positive business practices and services. You can find out more about these pillars at https://www.unglobalcompact.org/

EnvironmentStandard Life Investments’ ethical funds seek to invest in companies that:

¬ have a positive impact on the environment, through strong policies, processes and management, recognising the finite resources available in the world

¬ contribute to environmental protection and enhancement through their products and services, such as environmental technologies, renewable energy (such as wind, solar, geothermal, tidal), pollution mitigation, energy and resource efficiency, environmental protection and conservation of biodiversity and natural resources.

Human rights and communityThe ethical funds seek to invest in companies that:

¬ respect and support the human rights of those affected by the the companies’ business, particularly those companies upholding the highest standards of business conduct in countries with a weak rule of law

¬ offer products and services that provide access to some of the world’s most basic rights, such as water, sanitation, education, healthcare, food, shelter and energy, in a bid to enhance livelihoods and society

Active engagement Corporate governance

Standard Life Investments regularly engages with the companies they invest in. This valuable dialogue is key to the suitability and success of their values-based investment funds.

They focus on a variety of environmental and social issues to ensure companies meet high standards of corporate responsibility, encouraging companies, where necessary, to improve their corporate behaviour. Where engagement proves ineffective and concerns remain over corporate behaviour and oversight of these issues, they will disinvest from a company.

The ethical funds managed by Standard Life Investments adopt a formal corporate governance policy. Standard Life Investments actively votes at the AGMs of the companies held in the funds. Due consideration is given to issues such as board independence, excessive remuneration and audit issues. Voting is conducted within the terms of the Ethical Funds Investment Policy and in the best of interests of the investors in the funds. In addition, the funds will adopt a policy of voting:• against the Chairman of any company where the board fails

to have set policy, have oversight or take responsibility for environmental, social, health & safety and human rights issues.

• against members of any health, safety and environment committee where insufficient oversight has resulted in poor performance in these areas.

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Negative criteriaStandard Life Investments’ ethical funds also use negative criteria to avoid investing in companies involved in certain industries and activities that investors in the ethical funds are concerned with. If a company is involved in the activities listed below, the funds will avoid investment in them.

UN Global CompactThe ethical funds will avoid companies that have failed one or more of the 10 principles of the UN Global Compact (www.unglobalcompact.org).

Environmental protectionThe ethical funds will avoid investing in companies that:

¬ fail to recognise the environmental responsibilities associated with their activities

¬ have a significant or unmitigated harmful effect on the environment or its inhabitants

¬ are involved in highly carbon intensive activities or have high greenhouse gas emissions and have failed to show commitment to address climate change issues

¬ have significant carbon intensive mining operations, such as in coal or tar-sands

¬ manufacture chemicals of concern (such as ozone depleting chemicals and pesticides) without stringent policies, processes and practices to mitigate the harmful impact of their processes and products

¬ are involved in genetically modified organisms for agricultural crop or livestock production

¬ have operations that produce, manufacture or use commodities (such as cotton, timber, soya, palm oil or cattle) without sufficient processes in place to ensure their activities do not contribute to significant or unmitigated deforestation, significant biodiversity loss, or harm to the environment or communities.

WeaponsThe ethical funds will exclude any company that:

¬ manufactures or sells whole or strategic parts of weapons systems and weapons platforms

¬ companies that derive more than 20%1 of revenue from non-offensive military sales, such as vehicles or support to the military.

Human rightsThe ethical funds avoid any company:

¬ that operates in any country with a poor record of human rights and fails to have a human rights policy in place

¬ with continued accusations of human rights abuses, no matter where it operates

¬ that has been involved in controversial projects that have been linked to human rights abuses

¬ deemed to be supporting controversial regimes.

NuclearThe ethical funds will exclude miners of uranium, and operators and owners of nuclear power stations, deriving more than 5% revenue from nuclear power generation.

Alcohol productionThe ethical funds will not invest in companies that derive 10% or more of revenue from alcohol production.

Animal testingThe ethical funds will not invest in companies that manufacture products or ingredients that have been tested on animals.

Animal husbandryThe ethical funds will avoid investment in companies with significant exposure to activities which may lead to poor animal husbandry (such as intensive or factory farming), where there is evidence of poor practices or that do not respect the five freedoms (freedom from hunger and thirst; discomfort; pain, injury and disease; behave normally; fear and distress).

1 Percentage thresholds are determined by the importance investors in the ethical funds place on each criterion.

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FurThe ethical funds will not invest in companies that manufacture or sell fur products, that are not a by-product of the meat industry (e.g. wool or leather).

PornographyThe ethical funds will avoid companies that derive 3% or more revenues from adult entertainment services, including publishing and distributing pornographic magazines or newspapers, or violent video games.

Marketing breast milk substitutesThe ethical funds will avoid companies that market breast milk substitutes and have failed to commit to adopting industry leading marketing practices (such as those defined under the World Health Organisation’s International Code of Marketing of Breast-Milk Substitutes).

TobaccoThe ethical funds will avoid investment in companies that manufacture tobacco products.

Involvement in gamblingThe ethical funds will exclude companies that derive 10% or more revenue from involvement in gambling.

Poor business practicesThe ethical funds will avoid companies with evidence of poor business practices that cause harm to society or their employees that have not already been captured under other criteria (such as predatory lending and high interest rate lenders which have demonstrated poor business practices). The funds also seek to avoid companies which have a harmful effect on their employees, such as mining companies with poor health and safety practices, or companies with evidence of abusive employment practices.

Listening to investors

Standard Life Investments recognises ethical investors’ concerns and reflects these in the way the ethical funds are invested. By actively asking the investors’ opinions, the company can ensure that what matters most to their customers is at the forefront of the values-based investment strategies.

They’re one of the few ethical fund providers to carry out an annual survey of ethical investor sentiment.

Illegal deforestation, climate change and human rights abuses remain the most important concerns for investors in the ethical funds.

Standard Life Investments conducts an annual survey of ethical investor sentiment. The most recent survey was conducted in the second quarter of 2017. You can find out more about the policies Standard Life Investments promotes and their approach to active engagement - just go to www.standardlifeinvestments.com and select ESG Investment.

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SL Threadneedle UK Social Bond Pension Fund

In partnership with Columbia Threadneedle Investments, Big Issue Invest developed this fund to extend and support its mission – to prevent and dismantle poverty and inequality. Big Issue Invest invests directly in socially-driven businesses that aim to create positive social outcomes in local communities. The SL Threadneedle UK Social Bond Pension Fund supports this mission by providing finance to organisations and projects that support more balanced economic development and job creation in the UK.

The fund aims to provide both income and the potential to grow the amount you invested. At least two-thirds of the assets of the Fund will be in bonds that are issued in the UK. These will be issued by companies, governments, voluntary organisations and/or charities that engage in socially beneficial activities and development.

Investment is targeted to deliver social outcomes in eight areas:

¬ affordable housing

¬ education, learning and skills

¬ employment and training

¬ health and social care

¬ financial inclusion

¬ community services

¬ transport and communication infrastructure

¬ utilities and the environment.

How are the investments assessed?Big Issue Invest developed a unique Social Assessment Methodology for the fund, with input from Columbia Threadneedle Investments’ Governance and Responsible Investment (GRI) Team. Each investment is evaluated according to this methodology, and given a ranking based on the intensity of social outcome.

The Methodology provides social criteria for portfolio investment decisions that maximise the social performance of the fund – so investment is targeted to people and places with the greatest social need. You can find out more about this three-step process in the fund’s 2016 annual performance review.

About Big Issue Invest The Big Issue magazine was established in 1991 as a business solution to the social crisis of homelessness – it enables vendors to earn a living by selling a magazine on the street. The core philosophy of The Big Issue is about self-help – offering ‘a hand up, not a hand out’.

In 2005, The Big Issue launched Big Issue Invest (BII) as its social investment arm. Its mission is to help tackle poverty and inequality by providing finance to socially-driven businesses focused on tackling the UK’s most pressing social problems. BII has raised and invested over £30 million in more than 300 social enterprises, charities and community organisations (as at 31 July 2017). This has helped improve the lives of millions of people in Britain’s most disadvantaged communities.

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Passively managed values-based investment funds

Vanguard and HSBC Global Asset Management have designed passive funds that offer broad market coverage but exclude investments which don’t meet specific socially responsible or religious principles.

Managed by VanguardVanguard uses an investment process which aims to track a standard benchmark index, while excluding from its funds investments that don’t satisfy socially responsible criteria. Vanguard uses sophisticated investment techniques to keep the funds’ characteristics in line with those of the overall benchmark.

Vanguard aims to deliver the performance of the non SRI index while adhering to the SRI policy of not investing in those companies which don’t meet the SRI criteria of FTSE®.

How are companies screened?FTSE’s® Responsible Investment Unit develops the criteria a company must fit to be socially responsible. The FTSE® uses third-party agencies that rigorously analyse companies and assign socially responsible investing ratings. It reassesses regularly – and if a company doesn’t pass the screening Vanguard excludes it from the SRI funds.

The exclusion criteria are based on the UN Global Compact. This is made up of 10 principles of socially responsible investing including standards relating to human rights, labour relations, the environment and anti-corruption. There is also a weapons screen that excludes companies involved in the production of land mines, cluster bombs and nuclear weapons.

The socially responsible funds hold fewer investments than the non-SRI benchmarks that they track. This means that their performance may differ more than a standard Vanguard index fund over short periods.

However, they are managed to provide a similar return to the benchmark over the long term.

Shariah compliant fund managed by HSBC Global Asset ManagementWhat is Shariah investing?Islamic finance is a unique form of investment that fits with socially responsible investing. It derives its principles from Shariah – Islamic law. The most distinctive element of Islamic finance is that money is a means to an end and is not allowed to earn interest.

Investments must be certified as Shariah compliant by experts in Shariah. This is generally through a committee of Shariah scholars who are qualified to rule on financial transactions. The HSBC Amanah Global Equity Index Fund is overseen by the Executive Shariah Committee of HSBC Saudi Arabia Limited to ensure full compliance with Shariah principles. As part of their remit, the Executive Shariah Committee prepares the annual Shariah Compliance certification for the fund.

The major principles of Islamic finance that differ from conventional finance are:

¬ ban on interest (Riba)

¬ ban on uncertainty (Gharar) and transactions involving uncertainty or risk

¬ ban on speculation and gambling (Maisir)

¬ both parties in a financial transaction must share the associated risks and profits

¬ Shariah prohibits investing in activities considered ‘Haraam’ – those activities which are contrary to Islamic values and deemed unlawful under the Quran, such as alcohol, pornography, gambling and pork based products

¬ each financial transaction must be tied to a “tangible, identifiable underlying asset” and Islamic transactions also require 100% asset backing.

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How is compliance to Shariah ensured? By a board of independent scholarsThe SL HSBC Amanah Global Equity Index Pension Fund invests in the HSBC Amanah Global Equity Index Pension Fund which aims to mirror and track the Dow Jones Islamic Market Titans 100 Index. This index consists of Shariah compliant companies that have been endorsed by an independent board of Islamic scholars who advise Dow Jones.

This board also provides the ratios to calculate the proportion of any impure income a company makes. Some large Shariah-compliant companies may still generate a small part of their revenue (which must be less than 5%) from non-compliant activities.

For example, a company may be fully Shariah compliant, however it generates less than 5% of its revenue through financing operations – a non Shariah compliant activity.

Dow Jones analyses the annual reports of each Shariah compliant company to determine how much revenue can be attributed to non Shariah compliant activities and how much dividend is therefore considered impure.

By the HSBC Saudi Arabia Executive Shariah CommitteeHSBC Saudi Arabia’s own Executive Shariah Committee also closely monitors the fund to make sure it follows Shariah principles. The committee approves investment in listed companies whose activities do not contravene the principles of Islam. It acts as an additional layer of oversight to the methodology followed by the Dow Jones Islamic Market Titans 100 index.

The HSBC Saudi Arabia Executive Shariah Committee also issues guidelines to quantify the annual amount of impure income that the Shariah compliant companies have generated.

Impure income is donated to charityAny impure income the Fund earns is donated to charity. HSBC Global Asset Management proposes charities which the Shariah Committee then approves. However the target benchmark (Dow Jones Islamic Market Titans 100 Index) reinvests all the dividends (including the impure income) which will cause some tracking difference between the Fund’s and the benchmark’s total returns.

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Standard Life Assurance Limited is registered in Scotland (SC286833) at Standard Life House, 30 Lothian Road, Edinburgh EH1 2DH. Standard Life Assurance Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. www.standardlife.co.uk

Pensions Savings Investments Insurance

Find out moreYou’ll find more information about the core Standard Life values-based investing funds on the ethical funds page on

www.standardlife.co.uk For information on Standard Life Investments’ approach to ESG investment go to www.standardlifeinvestments.com and select ESG Investment.

INVSRIA 0917 ©2017 Standard Life Aberdeen, images reproduced under licence. All rights reserved.