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What do the UN Global Compact Principles mean for investors?

Please see the below article that we received from fund managers Quilter Investors yesterday afternoon:

With climate-related risks and environmental challenges seemingly at the forefront of investors’ minds, it’s important that all those involved in the investment industry adopt a broad approach when assessing the major risks facing corporate sustainability today. This should include human rights abuses and forced labour and corruption, as risks to corporate sustainability affect not only shareholders and bondholders but also other stakeholder groups including customers, suppliers and employees.

The UN Global Compact is one of the many tools that can help investors assess threats to sustainable business across the companies in which they invest.

The UN Global Compact – what is it?

Launched in 2000, the UN Global Compact is the world’s largest corporate sustainability initiative aimed at promoting corporate sustainability and encouraging innovative solutions and partnerships through 10 guiding principles.

The UN Global Compact supports companies in responsibly aligning their strategies and operations, in addition to helping them to advance broader societal change, through initiatives such as the UN Sustainable Development Goals.

It also sits alongside the Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises, which is another voluntary initiative to support sustainable business.

The UN Global Compact’s principle-based framework is broadly split into four key areas – human rights, labour, environment and anti-corruption – to help guide businesses in their activities in these areas. The framework is derived from numerous international declarations for companies and countries, such as the Universal Declaration of Human Rights and the Rio Declaration on Environment and Development.

The 10 Principles

Human Rights

  • Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights.
  • Principle 2: Businesses should make sure that they are not complicit in human rights abuses.

Labour Standards

  • Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining.
  • Principle 4: Businesses should uphold the elimination of all forms of forced and compulsory labour.
  • Principle 5: Businesses should support the effective abolition of child labour.
  • Principle 6: Businesses should uphold the elimination of discrimination in respect of employment and occupation.


  • Principle 7: Businesses should support a precautionary approach to environmental challenges.
  • Principle 8: Businesses should undertake initiatives to promote greater environmental responsibility.
  • Principle 9: Businesses should encourage the development and diffusion of environmentally-friendly technologies.


  • Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery.

Protection of human rights

Principles one and two relate to the importance of businesses to both support the protection of human rights and ensure that they are not complicit in human rights abuses.

A company that may be deemed to be in violation of the human rights principles could have revenue exposure to jurisdictions or authoritarian governments where human rights abuses are prevalent.

These companies are frequently flagged across emerging markets. For instance, an Indian port infrastructure company was flagged for being in violation of the principles given its financial ties to the Myanmar military.

However, a violation of the principles can be more explicit than this. For example, an Asian engineering and construction company was recently deemed to be non-compliant following a collapsed dam in Laos resulting in fatalities and the displacement of local communities.

Human rights is one of the main areas where investors can see which companies violate the UN Global Compact. It poses a higher risk across sectors such as aerospace and defence where businesses may be involved in the manufacture of controversial weapons.

The UN Global Compact is one of the many tools that can help investors assess threats to sustainable business across the companies in which they invest.

Labour best practice

Principles three, four, five and six are concerned with how sustainable businesses should uphold the effective recognition of the right to collective bargaining, eradicate all forms of forced (including child) labour and eliminate occupational discrimination.

Companies tend to fall foul of these principles less commonly. Following an investigation by Norway’s Council on Ethics, the forced labour risk has been particularly high in the Middle East over recent years. Migrant workers coming from India, Pakistan and Nepal face little hope of paying off the debt they owe to ‘recruitment agencies’ who have charged workers a fee for access to jobs in countries such as Qatar and the UAE.

As a result, there has recently been significant reputational damage to companies allegedly practicing forced labour in the Middle East.

Environmental responsibility

Principles seven, eight and nine provide guidance on how businesses should consider the negative impact of environmental damage, as well as the cost to a company’s reputation should a negative environmental event occur.

The principles also encourage investment in research and development around the long-term benefits of environmentally-friendly technologies.

Companies that are commonly deemed to be in violation of the environmental principles operate across the materials and utilities sectors.

For instance, an Indonesian aluminium business was found to be non-compliant given its interests in a mine that uses riverine tailings disposal (using rivers for mine waste disposal), a practice banned in many countries due to its severe environmental impacts.

Only four mines in the world engage in riverine tailings disposal, and in the case of this business, the mine in question has impacted one of the world’s most bio-diverse regions, Lorentz National Park, a UNESCO World Heritage Site.

Anti-corruption guidance

Principle 10 targets corruption in all forms, including extortion and bribery. The financial services sector is a particularly high-risk area of the market for exposure to corruption, specifically in relation to failings in anti-money laundering procedures.

Money laundering scandals have thrown the spotlight on the major Nordic banks in recent years, particularly those with exposure to the Baltic region, which has been beset by allegations of financial crime.

Our Comments

We have written about these UN Global Compact Principles in the past.

This is one of the key ESG processes that investment managers use to form their ESG screening process in relation to sustainable investments.

These principles are the foundation for investment firms who wish to bring ESG on board within their investments.

The main 2 methods of screening that investment managers use to assess whether or not the companies they choose to invest in are considered compatible with the 10 principles are positive and negative screening. Some firms go above and beyond this and look deeper, some use a combination of both.

Positive Screening is Investment in sectors, companies or projects selected for positive ESG performance in comparison to industry peers. This involves selecting firms that show examples of environmentally friendly and socially responsible business practices. This also includes avoiding companies that do not meet certain ESG performance thresholds.

Negative Screening is the exclusion from a fund or certain sectors or companies involved in activities deemed unacceptable or controversial (e.g. tobacco, arms, gambling etc). This involves avoiding companies that create negative impacts considered incompatible with the UN Global Compact Principles.

Just using these screening methods isn’t enough to ‘change the world’ so to say. It’s important that fund managers engage with the firms they are investing in, to challenge their practices to move them further along the ESG journey and ensure they are adhering to the UN principles.

ESG investing is still a new world, however, since we first started talking about it over a year ago, the ESG landscape has already moved forward, and fast.

We have more of our clients now engaging and starting the discussions around ESG and sustainable investing.

Interestingly, we listened to a compliance update earlier this week from our compliance partners, Paradigm. In this update there was a comment made that the view from MSCI is that they believe that clients will have to opt out of ESG investing in the future, rather than opt in, as they do now.

This supports the view we have had for a while now, that ESG investing will become the new normal.

Andrew Lloyd DipPFS

24th September 2021

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Over 50s leaving work early could hit retirement plans…and cost the UK economy £88 billion

Please see the below article published by AJ Bell:

The early exit of people aged between 50 and state pension age from the workforce has a significant impact on both individual retirement plans and the wider economy. In fact, it could be costing the UK as a whole as much as £88 billion, according to the latest ONS figures.

While in some cases stopping work early will be a voluntary decision – for example as a result of early retirement – in other situations it will be less voluntary, such as ill-health.

Worryingly, although perhaps not surprisingly, people who work in low-paying or physically intensive sectors are six times more likely to stop working before state pension age because of ill-health than those working in other professions.

What’s more, women are more likely to stop working early than men, potentially further perpetuating the gap in pensions between the sexes.

Stopping working in your 50s – when in theory your earning power and ability to save should be at its highest – could also have a significant impact people’s retirement outcomes.

In many cases it will mean making your retirement income stretch for much longer, meaning you have to live for less in your later years.

It also potentially impacts on people’s health and wellbeing. For all those reasons, supporting people in their 50s to stay in work for longer should be an absolute priority for policymakers.

Our Comment

It’s never too soon to prepare for retirement, for most of us a well-earned stage in your life.

When planning for retirement it’s not just about having enough money – although this is important. You need to be ready for retirement emotionally.

Retirement may take many forms for different people. There is no right or wrong approach. It’s useful to be prepared and flexible in our approach.

Retirement is a stage that transforms an individual’s life. Retirement can be viewed as a time when people cease employment and engage in activities other than a job or career related work.

Politically, for our policymakers, we need cross party consensus and buy in to a long-term strategy for pensions and retirement planning.  You can’t plan for these long-term issues with a short-term political focus from any party.

Policies need to take account of all of the issues and buy in doesn’t just need to be from different parties but also from different areas of government, the Treasury, the DWP etc.

We also need stability, particularly in long term planning issues such as pensions.  People need to know that the legislation in place is long term to have the confidence we need in pensions.

Andrew Lloyd DipPFS


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Value of the Vaccine’s

The below charts show some interesting data on the Covid-19 vaccine rollout programme.

Here in the UK, the NHS has had one of the most successful vaccine rollouts in history.

As of this week, nearly 90% of the population aged 16 or over have had their first vaccine, with 75% also having their second vaccine.

As you can see from the first chart, we are only second in the world behind Spain in terms of our rollout.

Fund managers, Brooks Macdonald, commented on 20/08/2021, ‘In low-income populations, you see a very low level of vaccine penetration, only 1.1%. Vaccine inequality is likely to persist.’

Comment from People and Business IFA

You can see that the vaccine roll out is key to how an economy might perform as it tries to re-open.  The age range fully vaccinated is important, as this impacts on the number of hospitalisations and deaths.

The chart above is showing a steep increase in hospitalisations in the US.  In turn it looks like the death rate in the US is starting to rise too.  Why is this?  It looks like it’s a political issue, with a huge divide between states, the Republicans have vaccine hesitancy.

With the lower take up rates of vaccines by both the elderly and the vulnerable in Republican states this is pushing up the hospitalisation rates now.

In Emerging Markets, the low rates of vaccination are creating supply chain issues.  You will have seen this covered in the media with the shortage of microchips slowing down automotive production globally.

The good news is that economies are recovering, inflation does appear to be transitory and both Central Banks and governments remain supportive for now.  We face headwinds, known and unknown, but if you would have asked me in March/April 2020 where we would be now this would have been the best outcome for markets and economies.

Steve Speed


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New ‘Smoothed’ funds from Prudential with an ESG focus – PruFund Planet

Prudential have recently launched 5 new funds with an ESG (Environmental, Social and (corporate) Governance) focus, the PruFund Planet range of funds.  This is good news and indicates the general direction of travel for fund managers. We see existing funds moving in this direction as well as a constant stream of new funds being launched with an ESG label on them.

PruFund Planet’s fund range is different in that it has the unique ‘smoothing’ element and is managed by M & G’s Treasury & Investment Office, the same team that manage the existing PruFund range of funds that launched originally in 2004.  They have a good long term track record.

Prudential are gradually integrating an ESG focus into the old PruFund range of funds through engagement with the existing underlying businesses and funds they are invested in.  There are c 5,000 different investments in PruFund Growth.

PruFund Planet is being launched with £500 million in seed capital, £100 million per fund.  For standard funds (not multi asset smoothed) this might be a reasonable amount of money for a new fund to get started.  I’m not sure that this is enough for a ‘smoothed’ fund when compared to the scale of PruFund Growth.

The problem (or the good news!) is that PruFund Growth is exceptional in terms of scale, leverage and buying power in markets.  The investment fund can write big cheques for large infrastructure projects, private equity and private credit.  This differentiates the fund, and allows it to invest in assets that will provide a good return, in turn helping to hold up the Expected Growth Rate (EGR).

Pricing of PruFund Planet funds at 0.65% fund management charge is the same as the existing ‘smoothed’ funds.  This is competitive for this multi asset fund.  The Expected Growth Rates of PruFund Planet funds are in line with their existing (original) smoothed fund peers initially.  I can see divergence of these in the future.


We are still conducting our due diligence and undertaking additional research on these funds.  Ideally, I would like the comparable fund to perform similarly to PruFund Growth.  This would offer the best risk/reward potential.

For now, I think it would be very risky to wholly invest in one of the PruFund Planet funds.  Once we complete our research and due diligence, it might be appropriate to invest a small proportion of your invested assets into PruFund Planet funds.

It’s a nice option to have for the future, particularly for those of us with an ESG focus.

Steve Speed


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Could the state pension age hike be reversed?

Please see below article received from AJ Bell yesterday afternoon, which hints that chances of a u-turn on when you can take your entitlement look slim. At the end of the commentary, you will also find our view on the matter.

Today men and women in the UK have the same state pension age of 66. This has not always been the case, however.

Prior to 2010, women received their state pension from age 60, while men had to wait until age 65. The 1995 Pensions Act first put forward proposals to increase the women’s state pension age to 65 – bringing it into line with men – between 2010 and 2020.

The 2011 Pensions Act accelerated this timetable, meaning state pension ages were equalised at age 65 in 2018 before increasing to age 66 by 2020.

From here, plans are in place to increase the state pension age to 67 by 2028 and 68 by 2046 (although the Government has previously indicated this could be brought forward to 2039).

Campaigners have long argued the changes introduced under the 1995 and 2011 Pensions Acts were unfair to women born in the 1950s, with some forced to wait six years longer than expected to receive their state pension.

One of the central charges was that the Department for Work and Pensions (DWP) failed to adequately notify affected women so they could adjust their retirement plans.

This case was considered recently by the Parliamentary and Health Service Ombudsman (PHSO), which investigated complaints that since 1995 the DWP had failed to provide ‘accurate, adequate and timely information about changes to the state pension age for women’.

The Ombudsman concluded that the DWP did not adequately respond to research in 2004 which recommended information should be ’appropriately targeted‘ at those affected by the reforms. As a result, it found maladministration had occurred.

While the Ombudsman’s finding may feel like vindication to the so-called ‘WASPI’ (Women Against State Pension Increases) campaigners, it has no power to compel the Government to provide compensation or redress.

In 2019 the High Court heard arguments that the state pension age increase discriminated on the ground of age and/or sex and sought a judicial review of the Government’s ‘alleged failure to inform them of the changes’.

The Court dismissed the claim on all three counts, and an appeal to the Court of Appeal in 2020 was also thrown out.

The Government has previously said putting men’s and women’s state pension ages back to 60 could cost £215 billion. Given the impact coronavirus has had on the UK’s finances, it seems extremely unlikely the Government will cough up this amount of money – or anything at all for that matter – if it is not compelled to.

P and B Comment

From my point of view, I don’t think there is any chance of State Pension age being lowered. It makes great economic sense for the State to keep putting State Pension age back, age 68 or even age 70 at some point.  A later State Pension age saves money for the State by not paying it out as early and probably keeping the majority of people in work, therefore generating higher income tax receipts.

In context, when real State Pensions commenced in a similar format to todays a few years after the end of World War II, the average man would have retired at age 65 and would have died about 2 years later.  Now, we could be looking at an average of 15 years of inflation linked income with potentially another 10, 15 or 20 years for those with good longevity.

The cost to the State is enormous and as we live longer, it will increase.  The ageing demographic – you can also add to the healthcare cost too.

One of the key messages I believe is to educate people about the State Pension and other pensions such as Workplace Pension provision.  If the young working population join pensions early, and fund them at a good level, they won’t be as reliant on the State Pension.  This could really make a difference to your lifestyle in retirement.

Steve Speed DipPFS


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People with financial advice four times more likely to have high financial wellbeing

Please see the article below cut and pasted from MoneyAge last week covering research by Aegon.

People with a financial adviser are four times more likely than those without one to have high levels of financial wellbeing, a new study from Aegon has found.

The pension provider said that people discuss with their advisers what makes them happy and gives them purpose to identify meaningful financial goals.

Aegon’s Financial Wellbeing Index, based on a representative survey of 10,000 people across a range of sectors, company sizes and job roles, revealed that just 10% of people who have never had any financial advice are fortunate to combine healthy finances and “a positive money mindset”, compared to 44% of those who have an ongoing relationship with a financial adviser, and 23% who have occasionally used a financial adviser.

The research also highlighted that the average advised client reported nearly three times as much in pension savings at £246,000, compared to £95,000 for non-advised people. This pattern was repeated across a range of other finances, with advised clients reporting total non-pension savings of £65,000 versus £32,000, and lower unsecured debt at £3,700 versus £6,400.

“Financial advice can make a significant difference to your future financial wellbeing,” said Aegon pensions director, Steven Cameron.

“Advisers have always been very focused on making sure they can boost their clients’ wealth. But the boost to mindset, while less well recognised, can be just as important to financial wellbeing. There is a growing awareness of the benefits of incorporating financial wellbeing into financial advice processes among financial advisers and planners.”

Aegon also stated that many advisers now try to establish what motivates their clients in order to build financial plans that enable them to achieve meaningful goals in life. The research found that 79% of those with an adviser say they have a clear sense of what gives them joy or purpose, which can significantly influence how people prioritise their finances, compared to 68% without.

Cameron added: “It’s important for all of us to think about our relationship with money, our vision of our future self and most importantly what makes us happy in life. Discussing this with an adviser can make sure you are managing your finances not just to have ‘more money’ but to allow you to give your future self the happiness, joy and purpose you want in retirement.”

People and Business IFA comment

The role of the IFA today is multifaceted, helping you to grow your assets tax efficiently, manage risk, define your objectives and help you achieve your objectives tax efficiently on a holistic basis.

We achieve this by engaging fully with our clients, communicating the issues, educating our clients about markets, products and their options, and gradually nudging them in the right direction.

This is done by keeping a close eye on markets, tax and regulatory changes alongside product innovation and fund launches.  It’s a full time and fully engaging role to be a modern IFA.  It’s also rewarding when we help our clients achieve their objectives whether it’s early retirement, inheritance tax efficiency, or protecting their family and business – their staff and key people too.

It’s no surprise to me that advised clients are in a better place over the long term, this is logical.  I might have a bias as an IFA, but I really believe in what we do.

Steve Speed DipPFS


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How mooted pension tax relief reform plans could hit savers

Please see below article recently received from AJ Bell, which warns of the potential impact that tax relief reform could have on pensions and investors.

Recent press reports suggest the Treasury is eyeing cuts to pension tax incentives to help pay the cost of COVID. Reforms said to be under consideration include introducing a flat rate of pension tax relief, cutting the lifetime allowance or taxing employer contributions.

Beyond the political fire and brimstone a pensions tax raid would cause among Conservative backbenchers and voters, there would be significant practical implications for any of the proposals floated by the Treasury.

Cutting tax relief for individuals risks undoing the groundwork laid by automatic enrolment and sowing mistrust in the stability of the retirement savings framework.

Hitting employers, meanwhile, might raise a fast buck for the Chancellor but would risk strangling off the UK’s pandemic recovery.

There were always going to be tough fiscal choices as the country slowly shifts away from dealing with the health emergency of Coronavirus and focuses on the financial hole blown in the Exchequer’s balance sheet.

It is critical any proposals for pension tax reform consider both short and long-term priorities, and in particular the challenge of ensuring current and future generations’ retirement prospects are not fatally damaged.

Introducing a flat rate of pension tax relief

Given the priority of the Government is to raise cash for the post-COVID economic recovery, a flat rate of pension tax relief would likely need to be set well below 30% to achieve this.

In fact, analysis carried out by the respected Pensions Policy Institute* suggested setting a flat rate of pension tax relief at 30% would actually cost the Government money, while a rate of 25% might save between £2-£3billion a year and 20% around £6-£8 billion a year.

Such huge savings would clearly come at a cost to individuals. For example, if a flat rate of 20% was introduced, a 35-year-old earning £60,000 and paying 4% of salary into a pension could miss out on £50,000 of retirement income by the time they are 67. Those earning more or making larger contributions would face an even bigger hit to their plans.

However, the big challenge in going down this road – both practically and politically – lies in the public sector, where some workers continue to enjoy generous guaranteed defined benefit pensions.

In order to apply a flat rate of relief to these pensions a tax charge would need to be calculated and applied directly to employees by HMRC.

Doctors and senior NHS staff who have been on the front line dealing with the pandemic would likely end up with tax bills running into thousands of pounds as a result.

Reduce the pensions lifetime allowance from £1,073,100 to £900,000 or £800,000

The lifetime allowance has been tinkered with relentlessly by successive Governments, reducing from £1.8 million a decade ago to just £1 million by 2016/17. Two years later it was pegged to CPI inflation – but this link was removed for the rest of this Parliament by Rishi Sunak in March. This constant tinkering has led to huge complexity and uncertainty for retirement savers.

If we were to get yet another cut to the lifetime allowance to £900,000 or even £800,000, as has been suggested, more diligent savers would be at risk of breaching the limit.

To put this in context, reducing the lifetime allowance to £800,000 would mean after tax-free cash has been taken the retirement income someone could take at age 66 would be well below the average salary in the UK.**

This would feel like an extremely low bar to set for people’s retirement aspirations.

Tax employer pension contributions

Of the pension tax proposals floated this was the one with the least amount of detail attached – which is saying something.

At the moment employer pension contributions are exempt from National Insurance, so it is theoretically possible the Treasury could reverse this position – or perhaps apply a limited charge – in a bid to raise revenue.

However, going down this road would cause uproar among businesses already struggling to deal with the fallout from the pandemic. It could also be counterproductive if landing these firms with extra costs forced them to hold off on investment.

Over the long-term, any increase in the costs of providing pensions would likely see a damaging levelling down of provision.


Pension tax reliefs have been under review since Gordon Brown was the Chancellor in 1997, remember his tax raid?  Every government looks at them.

Whilst changing tax reliefs could save money for the State, we need to look at the bigger picture.  What would be the impact on pension savings?  If people save less in pensions, they will rely more on the State.  This is not what any government wants.

I think tinkering with employer pension contributions tax relief would be particularly damaging.  Employers need to help fund employee’s pensions.

Hopefully, we won’t see any change in this area, but we also know that we need money now too to support the country in key areas, covid debt interest payments (long term repayment?), to re-build the NHS/Social Services/Residential Care etc., and to help kick start the economy in the UK.

The other issue is timing, Rishi Sunak needs all of us to go out and spend money now to help the economy recover.  He can’t scare us into not spending, we will fall back into recession.

Steve Speed


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Sustainable fashion: Why it matters, and how to identify the winners

Please see the below article from JP Morgan received yesterday, 26/04/2021:

The concept of sustainability is rapidly rising up the agenda within the fashion industry. Yet while consumers are increasingly interested in sustainable fashion, they are not willing to pay a premium for it. Still, sustainability can be a competitive advantage. We have seen companies delivering a sustainable message, but identifying the true leaders from the potential greenwashing takes research.

Consumers care about sustainabilty, but not at any price

As the global population grows, the negative environmental impacts of our demand for fashion are becoming more apparent. The industry is responsible for 10% of global carbon emissions and 20% of global wastewater, as well as producing significant amounts of waste. The equivalent of one garbage truck of textiles is dumped in landfill or burned every second.

75% of consumers view sustainability as ‘extremely’ or ‘very important’ in their fashion purchasing decision. And over 50% of consumers would switch for a brand that acts in a more environmentally and socially friendly way. But in practice, are consumers really willing to pay? Not yet, it seems. Only 7% of consumers say sustainability is the most important factor in their decision making.

Exhibit 1: Consumers care about sustainabilty, but not at any price – most important factors in decision making

Consumers continue to rate ‘high quality’ and ‘good value for money’ as the most important factors in their decisions. This is backed up by our engagements with fashion companies, who claim that consumers are not willing to pay a premium for sustainability, although at the same price point they would choose the more sustainable offering.

To us, this signals that consumers have a preference for sustainability and it can be a competitive advantage for retailers. But companies need to see it as a way to maintain or grow their market share rather than a way to increase prices. Sustainable leaders should be investing in innovation and scale for sustainable solutions to bring prices down and maintain their brand position.

Case study 1

Re:NewCell: Driving down costs for sustainability in fashion

Re:NewCell is a Swedish company driving down the costs of sustainable materials through innovation. The company has developed and patented Circulose, a high quality material made from recycled clothes. We expect Circulose – which has already been adopted by the likes of H&M and Levi’s – to see increasing uptake within the fashion industry, helping to lower the cost of sustainable materials and improve the industry’s environmental footprint.

Case study 2

Adidas: Leading the charge on sustainability

Adidas, the well-known sportswear brand, is at the forefront of sustainability within the fashion industry. The company particularly stands out on circularity, which is embedded in its strategic priorities: by 2024, Adidas has committed to replace virgin polyester with recycled polyester. The company already partners with the environmental organisation Parley for the Oceans to use recycled polyester made out of plastic collected from the coastline. All of Adidas’s cotton is sustainably sourced via the Better Cotton Initiative, earning Adidas the top spot in a 2020 independent ranking on sustainable cotton sourcing. Adidas has committed to reducing greenhouse emissions across its entire value chain by 30% between 2017 and 2030, and then achieving climate neutrality by 2050. As a further validation of Adidas’s sustainability efforts, these goals were submitted for external verification by the Science Based Target initiative in February 2020.

Sources: Adidas and the Sustainable Cotton Ranking 2020 (77 companies).

The companies above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell.

Distinguishing the real from the fake

The fashion industry is highly fragmented, and sustainability standards are still in their infancy. More and more companies are reporting on both their environmental and social impacts. But with different companies focusing on different disclosures, metrics and measurement methodologies, how can we identify the best? For us, fundamental research and company engagement are key, allowing us to assess whether fashion brands are paying lip service to sustainability or whether they are truly committed to it.

What do we look for in a sustainable fashion leader? 

  • Has the company signed up to measurable targets to reduce its negative environmental footprint?
  • Is the company abiding by external certifications to demonstrate the sustainability of its products?
  • Is the company accurately measuring and reporting its entire carbon footprint?

The last of these requires particular research focus as only about 5% of a fashion retailer’s carbon footprint comes directly from its own operations (scope 1 emissions) or indirectly from generating the energy used by the company (scope 2). The vast majority of carbon emissions occur in the company’s value chain (scope 3). This includes production, processing and transportation of fibres and fabrics, transportation of the end product to its final destination, and emissions related to use, care and disposal. Unsurprisingly, this complexity means that emissions are currently underreported, with many companies only reporting on transportation of the end product. Fundamental research is therefore key to understand the supply chain picture and determine what companies are really doing to reduce their total emissions.


While price sensitivity remains key for consumers in the fashion industry, evidence points to sustainability becoming more important in purchasing decisions and ultimately to long-term brand value. This implies a material opportunity for sustainable leaders to stand out while unsustainable fashion brands lose out. Yet the potential for greenwashing is rife in the industry, making it difficult to distinguish between leaders and laggards in the transition to sustainable fashion. Company research and engagement is key.

Our Comments

This is another example of sustainability and ESG themes filtering down to everyday life.

The fashion industry, particularly the problematic ‘fast fashion’ companies seem to hit the headlines on a regular basis for all sorts of issues, from waste to poor working conditions so the sustainability of the fashion industry is starting to be questioned more often.

With fund managers now also becoming increasingly more concerned with ESG and sustainability issues, the fashion industry will have to also adapt to these changes in the way consumers and investors are thinking and what it is they are looking for when investing or purchasing their products.

Shopping for items such as clothes became pretty much an online only occurrence for a large proportion of the past 13 months, I have myself noticed that sustainability is being used a selling point, whether it be statements on the companies website or even noted in the products description. Some companies plant a tree for every item of clothing purchased.

As this article highlights, a lot of people would consider switching to more environmentally and socially friendly brands, but they may not be willing to pay an extra premium for it. Personally, I don’t think it will be long until paying extra won’t be an issue, as the world changes and now has ESG principles under a microscope, these companies will have to adapt to remain competitive in the marketplace.

From a personal experience perspective, I recently purchased an item of clothing having no idea it was part of a ‘sustainable’ line until I was checking the label for the washing instructions only to find out that the item was made out of 100% recycled plastic bottles and textile waste that had been processed and melted down into new fibres in an effort to save water, energy and reduce greenhouses gases.

The item was no more expensive than a ‘non sustainable’ item and the quality was probably better than products that use ‘virgin’ or non-recycled materials.

As consumers, if you don’t have to compromise on cost or quality, then why wouldn’t you choose more sustainable options?

Andrew Lloyd


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Will ‘peak pension freedoms season’ return after pandemic-induced withdrawals slump in 2020?

This email was received yesterday, 11/04/2021, and this article was written by Tom Selby, a Senior Analyst at A. J. Bell.

Until 2020, the beginning of a new tax year has traditionally been peak pension withdrawal season, with UK savers taking advantage of a fresh set of tax allowances to access larger amounts from their retirement pots.

In fact, before the pandemic hit withdrawals in the first three months of the financial year had been between 10% and 33% higher than in subsequent quarters.

That all changed last year, when retirement income investors spooked by the uncertainty of lockdown – not to mention double-digit market falls – tightened their belts, with year-on-year withdrawals dropping 17%.

This likely reflected people choosing to either delay accessing their pension, pause withdrawals or reduce the amount they were taking as income in the face of profound uncertainty.

While most of us still have fewer things to spend our money on at the moment – particularly given restrictions on foreign travel – the success of the coronavirus vaccine and more stable market conditions mean we should expect to see a significant jump in withdrawals in the coming quarter.

For those accessing their retirement pot during this period, there are various pitfalls and bear traps to watch out for.

Source: HMRC

1. Taking taxable income flexibly from your pension will trigger an irreversible £36,000 cut in your annual allowance

Anyone considering taking taxable income from their retirement pot for the first time needs to be aware of the severe impact it will have on their ability to save tax efficiently in a pension in the future.

Taking even £1 of taxable income will trigger the money purchase annual allowance (MPAA), reducing the amount most people can save in a pension each year from £40,000 to just £4,000.

Furthermore, if you trigger the MPAA you will lose the ability to ‘carry forward’ unused pensions allowances from up to 3 previous tax years, meaning in some cases the impact will be a £156,000 reduction in the potential annual allowance in the current tax year, from £160,000 to £4,000.

To avoid an annual allowance cut, savers who have the option should consider using money held in vehicles such as ISAs or cash savings accounts first. For those who only have their pension, just taking your 25% tax-free cash will also allow you to retain the £40,000 annual allowance.

2. Your first taxable withdrawal will be subject to emergency ‘Month 1’ taxation

Since the pension freedoms launched in April 2015, around £700 million has been repaid to savers who were overtaxed on taxable withdrawals.

When you first take a flexible payment from your pension, HMRC will automatically tax it on an emergency ‘Month 1’ basis. This means that the usual tax allowances are divided by 12 and then applied to that first withdrawal.

For example, if someone made a £12,500 taxable withdrawal in 2020/21 and had no other taxable income, they might expect to be charged 0% income tax as the withdrawal is within their personal allowance.

However, because it is their first taxable withdrawal only £1,042 (£12,500 personal allowance divided by 12) is taxed at 0%. The next £3,125 (£37,500 basic-rate tax band divided by 12) is taxed at 20%, with the remaining £8,333 taxed at 40%.

In total, rather than paying zero tax they would face an initial – potentially shocking – bill of £3,958.

For those taking a regular income this shouldn’t be a problem, as any overpaid tax in the first month will be ironed out via your tax code. However, where it is a single payment over the tax year there are two options – wait until the end of the tax year for HMRC to hopefully sort it out, or sort it out yourself by filling out one of three forms.

Once you’ve filled out and sent off the relevant form, HMRC says you should receive a refund of your overpaid tax within 30 days.

View the tax refund form

  • If the withdrawal used up your entire pension pot and you have no other income in the tax year, use form P50Z;
  • If the withdrawal used up your entire pension pot and you have other taxable income, use form P53Z;
  • If the withdrawal didn’t use up your pension pot and you’re not taking regular payments, use form P55.

3. Think about the sustainability of your retirement plan – and beware big withdrawals during falling markets

Last year saw the first bear market – characterised by falls in stocks of more than 20% – since the pension freedoms launched in 2015. The pandemic and global economic shutdown brought into sharp focus the importance of understanding the investment risks you are taking and managing withdrawals sustainably.

This is particularly the case where large withdrawals come at the same time as big falls in markets, a phenomenon often referred to as ‘pound-cost ravaging’.

As an example, someone taking a 5% inflation-adjusted income from their fund who suffered a 20% hit in their first year of drawdown and 4% growth thereafter could see their pot run out after 18 years – three years sooner than if they suffered the hit 10 years into retirement.

To put this into context, whilst on average life expectancy at 65 is 18.6 years for men and 21 years for women, a man has a 1 in 4 chance of living another 27 years, while a woman has a 1 in 4 chance of living another 29 years.

Savers wanting to manage withdrawals sustainably and avoid selling down their capital at a low point in the market could use other cash resources – such as ISAs, savings or their 25% tax-free cash – in order to keep their underlying pension intact.

Taking a natural income has also been a good strategy previously, although finding companies paying the dividends needed has been a real challenge over the past 12 months.

For those who do take capital withdrawals from their pension, the key is to have a plan in place and review your income strategy regularly, ideally with the help of a regulated adviser, to ensure you aren’t risking running out of money early in retirement.

4. If you’re just taking your tax-free cash, don’t forget about the remaining 75% of your fund

The vast majority of savers cite accessing their 25% tax-free cash as the main reason for entering drawdown*. This is understandable given this is one of the main tax benefits of saving in a pension.

Although accessing your tax-free cash won’t necessarily mean a change in your underlying investments, it is worth using this as an opportunity to review your retirement plans and ultimate goals.

For example, someone planning to take a regular income after accessing their tax-free cash will likely have a different asset allocation to someone who doesn’t plan to touch the remaining money for 15 years.

While many will understandably be spooked at the prospect of investing at the moment, it is worth remembering that short-term volatility has historically been the price you pay to enjoy longer-term growth.

Investors also need to be aware of and comfortable with the risks they are taking.

Although investments can go down in value as well as up, the value of cash will be eaten away by inflation over time.

5. Do you want to spend your pension or leave it to loved ones after you die?

Pensions are no longer just about providing an income in retirement. Since 2016, savers have been able to pass on leftover pensions tax-free if they die before age 75.

Where the pension holder dies after age 75, the remaining funds will be taxed at their recipient’s marginal rate when they make a withdrawal.

For those who want to leave assets to loved ones, it therefore often makes sense to leave as much of your pension untouched as possible in order to minimise your tax bill.

This means when you come to flexibly access your pension for the first time, you should think not just of your retirement income strategy but also your IHT plans.

It’s also important to ensure your nominated beneficiaries are up-to-date so the right people inherit your pot.

Useful input from Tom at A. J. Bell.  There is nothing new here, since the new ‘Pension Freedoms’ were introduced in April 2015 we have had the freedom to withdraw capital and/or income from age 55 from our fund value based pension pots with greater flexibility.

However, we have had some form of Pension ‘Drawdown’ legislation in place since 1995.

This is a key area for independent financial advice.  The pitfalls are substantial if you don’t fully understand what you are doing.

In general terms, it’s probably better for the majority of the population not to access their pension funds until they retire or at least semi retire.  There are exceptions to this.

My focus as an IFA is in the following areas:

  1. Overall tax efficiency, holistically and with your partner if applicable
  2. Sustaining your pension assets for potentially a long-term retirement.  We are living longer on average
  3. Retaining your ability to fund pensions at a good level if at all possible
  4. Building your assets for your eventual full retirement, a variety of assets to aid tax efficiency and risk control

Retirement planning is not a ‘one size fits all’ approach.  We need to carefully take into account our client’s circumstances, plans and objectives.

The earlier you start planning for retirement the better.  We can do a lot more with a 15 year term to retirement than we can with a few months.  However, even if you are coming to this ‘Pension Freedom’ late, near drawing benefits, please do take advice.

Steve Speed


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Why it’s a good idea to have an emergency fund

Please see the below article published by Royal London, then our closing comments in blue:

Setting aside money for a rainy day can help tide you over in difficult times and provide some financial security when you need it most.

What is an emergency fund?

This is money you save to pay for the unexpected, whether that’s a bill you hadn’t planned for or a change in your circumstances such as if you lose your job or are unable to work due to illness. This cash is often called rainy day money.

Why you should have an emergency fund

If you have money set aside for emergencies, you’re far less likely to experience financial difficulties or have to borrow at a high interest rate if things go wrong or your circumstances change. Knowing you’ve got some money tucked away might help you sleep better at night too.

Deciding how much you need

This depends on several things such as your circumstances, the sorts of emergencies you might face and how much insurance protection you already have.

For example, someone with a family, mortgage and loans is likely to need a larger emergency fund than a single person with no children who lives in rented accommodation and has no debts. This is because they have more financial responsibilities and dependants to look after. That’s not to say that if you’re single with no dependants you don’t need an emergency fund. Everyone should keep some spare money available – it’s just a question of how much.

If you have insurance to cover certain losses or expenses, this might affect how much you need in your emergency fund. For example, you may have house, car or dental insurance which would cover you for some emergencies and expensive bills. Or you may have insurance which would provide you with an income or pay some of your bills if you lost your job or were unable to work due to illness. In these cases you might only need enough in your emergency fund to tide you over until these payments kicked in.

But the general advice is to have enough money in your emergency fund to cover your expenses for at least three months. So, if your monthly expenses are £2,000 you might want an emergency fund of £6,000. If this seems like a daunting amount to aim for, don’t be put off. Remember that having some savings, however small, is better than having nothing. Why not try setting your own goal to save a set amount by the end of year? Aim for a challenging but achievable amount.

How to build an emergency fund

Saving regularly is a good way to build up an emergency fund. You’ll find that if you get into the habit of saving each month your savings will soon mount up. See our tips below to help you save.

Some people like to have more than one emergency fund. For example, one fund might be to replace income if you’re unable to work and another to cover any unexpected one-off or larger-than-expected bills. There’s no right or wrong way of doing this, just choose the method that suits you best.

Tips to help you save

Make it simple: Set up a monthly transfer so that money is automatically taken from your current account and put into a savings account.

Time it right: Set the transfer so it goes out of your bank account straight after you get paid or get your pension or benefits.

Keep your savings separate: By keeping your savings in a separate account from your everyday spending you’ll be less tempted to spend them.

Check your spending: If you don’t think you can afford to save, try closely monitoring your spending for a month or two. You may find areas you can cut back on. If you haven’t reviewed your bills like your house and car insurance or your energy or mobile phone deal recently, you may be able to free-up money by switching to a cheaper deal.

Save first: If you get a pay rise, think about saving some of it before you get used to having the extra cash.

Where to keep your rainy day money

Regardless of how many emergency funds you choose to have, the money should always be easily accessible such as in an easy access savings account or instant-access cash ISA. Avoid accounts where you have to give a long period of notice to take your money out.

If you are on certain benefits, you will qualify for the government’s Help to Save account which pays a generous tax-free bonus to help boost your savings. You’ll get 50p for each £1 you save over four years, although there are limits on the maximum bonus you can get. For example, you can only save up to £50 a month into the account. To find out if you’re eligible and for details of the bonus, go to

What if I’ve got debts, should I still save?

It depends on what kind of debts you have. If your debts are manageable and low cost, this shouldn’t hold you back from starting a rainy day fund. Having some savings set aside will mean you won’t have to fall back on expensive borrowing if you do have an unexpected expense.

If you’ve got expensive debts such as credit card or overdraft debt, arrears on your mortgage or a payday loan, you might want to think about using any spare money you have to pay off these first. The Money and Pensions Service has some useful guidance on whether to save or pay off debts first.

This is a really good article from Royal London and highlights the importance of a rainy day fund.

Last year was the ultimate rainy day for some people who perhaps lost their jobs, were furloughed or the self employed whose income may have dropped.

Having money set aside in easily accessible accounts is key for emergencies and unforeseen circumstances.

Royal London suggest in this article having at least 3 months expenditure set aside however this should be your starting point, we would recommend aiming to have a years expenditure as your emergency fund, especially in the run up to retirement for example.

Look at what the past year taught us, nobody expected it and nobody was prepared so if you haven’t already got an emergency fund, start building one now, that rainy day could be just around the corner!

Andrew Lloyd