LGIM reveals positive impact of engagement to address climate change

15 June 2022

Annual Climate Impact Pledge reveals a 35% reduction in the number of companies not meeting minimum standards over the past year.

• Successful engagement has led to LGIM reinstating one previously divested company into a range of sustainability-focused funds
• LGIM to divest two companies from this same range of funds for failing to respond satisfactorily to engagement efforts; a further 12 companies remain on the exclusion list
• During the 2022 proxy season, 80 companies are currently subject to voting sanctions for not meeting LGIM’s minimum climate-change standards

Legal & General Investment Management (LGIM), one of the world’s largest asset managers, has today released its annual Climate Impact Pledge report, revealing positive momentum to address climate risk, across approximately 1,000 companies included in its annual assessment.

Over the year, LGIM has seen the number of companies subject to its voting sanctions for not meeting minimum climate change standards, decrease by over 35%, from 130 companies last year, to 80 this year, reflecting the positive impact of LGIM’s approach and the global momentum behind climate action. Of the 80 companies subjected to voting sanctions throughout the 2022 proxy season, the oil & gas, REITs, banking, and mining sectors are amongst those most sanctioned.

Originally launched in 2016, this is the second Climate Impact Pledge report under LGIM’s strengthened approach announced in 2020, which saw LGIM commit to expanding its assessment to around 1,000 global companies in 15 climate-critical sectors, which are responsible for more than half of greenhouse-gas emissions from the world’s largest listed companies.

LGIM also identified 59 companies for deeper individual engagement. These companies, which are particularly influential within their sectors, are yet to fully embrace the transition to net-zero emissions but have the potential to have a significant positive effect across their sectors and value chains by doing so. 31 of the 59 companies identified have now set a net-zero target, a more than doubling since 2021.

LGIM is also pleased to announce that Japan Post Holdings has been reinstated following progress on a number of areas of engagement – in particular the disclosure of scope 3 emissions associated with investments and the publication of interim and 2050 net-zero targets.

During 2022, LGIM will further expand the reach of the programme and raise the expectations of companies’ management of climate risks and opportunities.

Engagement with consequences

Drawing on approximately 65 different data points, and leveraging its proprietary climate modelling tool – LGIM Destination@Risk – as well as third part data, LGIM assesses companies against five key pillars:

1. Governance: how is the oversight of climate issues exercised at the board level and communicated to investors?
2. Strategy: what policies do companies have in place, and what policies are they lobbying governments for?
3. Risks and opportunities: how much of companies’ current earnings comes from ‘green’ activities, and how much of potential future earnings is at risk in the low-carbon transition?
4. Scenario analysis: what level of global warming are companies’ plans aligned to?
5. Metrics & targets: how ambitious are companies’ emission targets, and how do they compare to past performance?

However, despite the positive momentum, LGIM has announced that under the Pledge, it will divest its holdings in China Resources Cement and Invitation Homes, effective from 31 May 2022 across select funds1, for failing to meet its engagement requirements.

Although progress has been made by some of the companies previously divested, CCB, ICBC, MetLife, AIG, KEPCO, PPL, Exxon Mobil, Sysco, Hormel, Rosneft2, Loblaw and China Mengniu Diary remain on LGIM’s exclusion list having so far taken insufficient action to justify re-instatement.

Source: Legal & General