Legal & General Investment Management (LGIM). one of the largest global institutional investors and the largest money manager in the UK, is warning that companies that fail to take action on climate change will lose its shareholder backing.
LGIM, one of Europe’s largest asset managers, is the investment arm of the Legal & General Group and manages £1 trillion worth of UK pension fund investments.
In June 2018 LGIM unveiled the first company rankings under its Climate Impact Pledge which named both the leaders and laggards on how they are addressing the climate change challenge. As part of the Pledge LGIM wrote to 84 global companies to warn that it will vote against board chairmen at businesses that fail to prepare for a move to a greener economy
Legal & General named the following companies whose shares they decided to divest:
- China Construction Bank (Government owned)
- Occidental Petroleum
- Dominion Energy
- Rosneft Oil
- Japan Post Holdings (Government owned)
- Subaru
- Loblaw Companies
- Sysco Corp
According to LGIM, each of the companies has since contacted them to discuss actions needed to be reinstated.
LGIM has committed to engage under its Climate Impact Pledge with the world’s largest companies in six sectors which are key to the low-carbon transition:
- autos
- electric
- financials
- food retail
- mining
- oil/gas
- utilities.
The companies targeted are scored on over 170 indicators, based on their articulation of risk and opportunities, the level of transparency, the robustness of their governance, the strength of their strategies in pursuing new opportunities, the record of controversial incidents and how they lobby governments on climate regulations.
All companies are contacted directly to discuss areas of improvements with constructive feedback based on their current disclosures - a 12-month limit for tangible action to be demonstrated publicly is included some requests.
LGIM’s Climate Pledge states:
“Failure to meet this timeline will lead to voting against the chair of the boardacross the entire equity holdings of LGIM and to divestment in our Future World fund range.”
In all other funds where LGIM cannot divest, the company has said it will vote against reappointing the chair of their board of directors, to ensure it is using one voice across all of its holdings.
In 2018 LGIM topped the rankings in the Asset Manager Climate Scorecard 2018 published by the 50/50 climate project, supporting 85% of climate change proposals.
Chart: Asset Manager Climate Scorecard 2018
The review of the world’s thirteen largest asset managers’ US proxy voting in carbon-intensive industries showed that asset managers supported 42% of climate proposals on average. In contrast, the largest asset managers showed the least support on key climate and political disclosure votes - for example, BlackRock and Vanguard supported only 23% and 33% of climate proposals, respectively.
The Scorecard concluded:
"Lack of support from largest asset managers resulted in lost opportunities to signal strong investor concern regarding climate issues at key companies, because asset managers with large ownership stakes voted with management despite clear issues of concern to climate-aware investors.”
LGIM was also the largest asset manager in the world to support the G20 Financial Stability Board Task Force on Climate related Financial Disclosure (TCFD) recommendations when they were first released.
Speaking to the BBC, Legal & General's director of corporate governance, Sacha Sadan, commented:
"2018 was a record year for us as we continued to engage with companies on a broad range of issues, using our voting power to influence change on behalf of our clients. The increased figures reflect the higher standards we expect companies to adhere to."
“The initiative was well received by clients and our other stakeholders, but we were unsure how those companies we criticised would take it – because in addition to ‘faming’ the leaders who are addressing the challenge of climate change, we also named the laggards. We couldn’t have had a better reaction: eight out of the eight have now responded to our areas of concern. I’m now optimistic that when we announce the leaders and laggards again in 2019, the list will look different.”
Click here to download Legal & General Investment Management's Active Ownership Corportate Governance report
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