Legal & General Investment Management (LGIM) is moving the equity investments in all its main default funds across to its Future World fund range as part of its Climate Impact Pledge unveiled today.
The move means 2.1 million DC savers and over £30bn of assets, including the main Multi Asset Fund and Pathway defaults, across both the WorkSave Pension Mastertrust and GPPs, will use equity components from the Future World range.
The move means LGIM’s Climate Impact Pledge, which seeks to spur net-zero carbon emissions globally by 2050, now applies across all of the provider’s DC defaults.
The pledge also sees climate ratings for over 1,000 companies in key sectors being made publicly available under a ‘traffic light’ system on LGIM’s website. Voting and investment sanctions will be applied to ‘laggard’ companies. The move marks more than a ten-fold increase in number of companies covered. The selected companies are responsible for over 60 per cent of the greenhouse gas emissions from listed companies.
Companies identified as falling short of LGIM’s minimum standards, such as those lacking comprehensive disclosure of emissions or key sustainability certifications, will be subject to a vote against and potential divestment from select funds. LGIM says it intends to ‘ratchet up’ the stringency of both its standards and sanctions over time.
In 2016, LGIM committed to engage with around 80 of the largest companies in the energy, transport, food retail and financial sectors around the strength of their sustainability strategies. Companies demonstrating best practice were celebrated publicly, whilst LGIM voted against and divested poor climate performers – including ExxonMobil – from its Future World range of funds. The programme has contributed to positive steps taken by companies such as Dominion Energy, with LGIM announcing Japanese automaker Subaru – previously on its exclusion list – will now be reinstated in its Future World funds following improvements in emission targets and disclosures.
Since 2016, consensus has been growing around reaching net-zero carbon emissions globally by 2050 as the safest path to meet the goals of the Paris Agreement on climate change.
LGIM head of DC Emma Douglas says: “This is a significant leap forward and will mean that our DC investors can be assured that their retirement savings are influencing real and positive change. We have always considered ESG to be a financially material consideration and we know this is echoed by the views of our clients and individual members. In a recent survey amongst our membership, nearly half of DC savers preferred a policy of engagement in the first instance, before divesting. We are finding the concept of “engagement with consequences” really resonates with our members. Incorporating the framework of this expanded Climate Pledge into our defaults allows us to do exactly that.”
“Our latest Climate Impact Pledge also supports trustees and employers to fulfil two of their most important responsibilities enabling a greater alignment between members’ investments and their values, and helping to meet their increasing regulatory duties or business objectives. The Pledge aligns well with our pilot project with Tumelo, a fin-tech platform that allows members to indicate how they would vote on the key issues at the companies they hold in their funds, as we strive to further educate, support and empower our member base on the role and impact of their pension savings on society”.
LGIM CEO Michelle Scrimgeour, who is also a member of UK Government’s COP26 Business Leaders Group, says: “As governments around the world are set to announce new, ambitious climate policies ahead of next year’s COP26 conference in Glasgow, investors must also step up. Through our engagement programme renewed to align with the net zero challenge, we want to help steer companies and our clients towards success in a low-carbon world”
Meryam Omi, Head of Sustainability and Responsible Investment Strategy at LGIM, member of the COP26 finance high-level climate champions team, says: “Inaction on climate change threatens the long-term stability of the market, but we know engagement with consequences can get companies to change. The challenge is having more speed and scale. That is why we are combining cutting-edge data with in-depth research into key sectors to support companies that are building resilient strategies, and systematically hold to account those that are not.”
Lord Nicholas Stern, IG Patel Professor of Economics and Government at the London School of Economics (LSE) and Chair of the Grantham Research Institute on Climate Change and the Environment, says: “There is mounting evidence that firms that put sustainability at the heart of their strategy perform better, too. It is vital that asset managers like LGIM must continue to use their influence to accelerate the sustainability revolution across all sectors.”
