We keep hearing about biodiversity and the Taskforce on Nature-based Financial Disclosure (TNFD). Why do they matter to DC pensions?
The pensions industry has spent a lot of energy focusing on climate change risk and the Taskforce on Climate-related Financial Disclosures (TCFD). But you can’t just look at climate change in isolation simply through the lens of emissions. A diverse eco-system can take carbon out of the air so it is important to embrace it within our ESG policy.
Nature includes many factors such as deforestation, overexploitation, pollution, fragmentation and unsustainable agricultural practices. Recently, the international community, including LGIM, gathered in Montreal for COP15 to agree a robust and ambitious framework that will help reduce our collective impact on nature, transitioning our economies to live in harmony with nature by 2050.
We back the TNFD recommendations, which call on companies to disclose their impact on nature.
LGIM is engaging with these important initiatives, and has already started to act, including integrating biodiversity into our Climate Impact Pledge and introducing biodiversity indicators into the ESG score.
Why should investors care about nature?
Nature has an impact on company performance and risk – more than half of the world’s economic output is dependent on nature. If companies don’t take care of nature, that can impact performance. It also obviously impacts the world DC scheme members exist in and outcomes in the long term.
We are working to raise awareness of the importance of biodiversity amongst members and investee companies. We have partnered with endurance swimmer Lewis Pugh, who swims in vulnerable ecosystems, such as the North Pole, to highlight the fragility of nature and the importance of protecting its biodiversity.
How are biodiversity concerns shaping your DC investment strategy?
We are already incorporating an element of biodiversity in our default funds. The biodiversity indicator is the most recent addition to LGIM’s ESG score, and all of our defaults benefit from our active ownership approach. Also, our climate impact pledge, which identifies the thousand worst emitting companies globally responsible for circa 60 per cent of global greenhouse gas emissions, to try to engage with them to get them to think better around their practices and supply chains.
We are also starting to see requests from trustees and employers for investment themes such as clean water, deforestation and renewable energy. These could be specific allocations in DC options moving forward.
How is your approach to stewardship evolving?
Legal & General has recently launched a new ‘Expression of Wish’ digital service in partnership with Tumelo, allowing trustees to identify the ESG issues that matter most to their members and encouraging direct dialogue between trustees, members and the industry-leading LGIM’s Investment Stewardship team.
LGIM will always vote and are known for taking a strong stance on issues like climate change, biodiversity, workers rights and social issues.
Our partnership with Tumelo is giving us really strong insights into what our members and clients think about key issues relating to responsible investment.
I’ve heard about L&G’s mission statement on inclusive capitalism – can you explain more about it?
At L&G Group our values and purpose are centred around delivering positive change, not just to investors but also our customers. The way we do this is through what we call inclusive capitalism. This involves using our shareholder capital, for example our annuity book assets, to create positive good, particularly in the UK economy but also globally. We find many organisations, particularly those within the master trust, see our inclusive capitalism approach as being in line with their own core values, and their own journey towards net zero.
Inclusive capitalism also helps connect members with their DC savings because it can demonstrate something real and positive they can engage with.