Legal & General has updated its Climate Impact Pledge with two baseline demands of three of the most carbon intensive sectors.
It says it expects methane emissions disclosure from across the oil and gas industry, and wants no further expansion of thermal coal mining or power generation capacity for the mining and utilities sectors.
This is Legal & General’s eighth Climate Impact Pledge, published after its annual engagement programme – which is designed to raise standards and encourage companies to play their part in achieving the goals of the Paris Agreement.
This latest pledge comes after Legal & General Investment Management revealed it had engaged with more companies in the past 12 months on climate issues than ever before – a total of 2,800 companies.
A total of 492 companies were identified as subject to vote sanctions against the chair of the board, up from 342 in 2023. The Climate Impact Pledge covers 86 per cent per cent of the total carbon emissions attributable to LGIM’s corporate debt and equity holdings.
LGIM says that while there has been progress, the global pace of transition remains insufficient. LGIM said that as a result it will continue to apply its approach of ‘engagement with consequences’, which, this year saw it divest from mining company Glencore and retailers TJX.
The divestment from Glencore follows extensive engagement with the company since the first Climate Impact Pledge launched in 2016. LGIM filed a shareholder resolution at Glencore last year, requesting that the company disclose how its projected thermal coal production aligns with the Paris Agreement and efforts to limit the global temperature increase to 1.5°C.
LGIM says it remains concerned that Glencore has not disclosed plans for thermal coal production that are aligned with a net zero pathway. LGIM has divested from TJX over concerns about an absence of a zero-deforestation policy and insufficient disclosure of material Scope 3 emissions that fail to account for its material value chains’ emissions.
These latest divestments mean that LGIM now has withdrawn investments from 16 companies. These apply across to all funds within its £176 billion of assets under management, including funds in the Future World fund range, LGIM’s ESG fund ranges, and all auto-enrolment default funds in L&G Workplace Pensions and the L&G Mastertrust.
LGIM says it continues to engage with companies on its divestment list and will take companies off the list when sufficient progress is made. However it said no companies had been removed from this divestment list in the last year – although t added that a number of companies, including Loblaw, Invitation Homes and COSCO Shipping Holdings had demonstrated progress. LGIM says it continues to engage constructively with these companies.
LGIM also published further data on its engagement programme. From the quantitative assessment of 5,000+ companies captured in LGIM’s universe of emission-intensive sectors, 106 companies were identified as being subject to voting sanctions for not meeting its new baseline expectations, while an additional 349 companies were identified as being subject to voting sanctions for not meeting LGIM’s minimum climate change standards. LGIM also raised expectations of the number of minimum standards Japanese companies needed to meet from one to three.
LGIM also targeted over 100 ‘dial mover’ companies to meet and discuss its transition expectations. It said may apply voting sanctions against 37 of these companies, down from 43 in 2023, indicating notable progress in the group of companies with which it meets.
The 2024 season also saw LGIM co-file its first shareholder resolution in Japan, at Nippon Steel – the largest steel maker in Japan and one of the largest globally in terms of production – calling on the company to become a regional leader on climate-related lobbying disclosures.
LGIM CEO Michelle Scrimgeour says: “With the world recently experiencing its first annual average temperature overshoot of 1.5˚C, the message is clear: there is much more to do to mitigate climate change, and we need to act now.
“I have been encouraged by progress over the last 12 months, with many of the companies with which we have engaged making significant strides in important areas. However, it is clear that the pace of the transition is neither smooth enough nor fast enough. It is not the role of the asset management industry alone to tackle climate change: this is a whole of system transition, the pace of which is influenced by global public policy, regulatory standards and the nature of energy demand. Radical collaboration is therefore key – to drive aligned action and decarbonisation on a global scale.”
LGIM’s senior manager sustainability and responsible investment, Stephen Beer adds: “The role of stewardship has never been more important – it is a critical lever in the global effort to reach net-zero.
“We find that as time progresses, our conversations with companies can become harder-edged; not necessarily more difficult, but more focused. We use tools such as voting and divestment to encourage companies to meet our expectations on net-zero, while also sending a clear signal to the wider market. While divestment is one of the many stewardship tools we use as a mechanism for driving change, we see it as a last resort and by no means the last stage of engagement. Our engagement will continue, and where companies make sufficient progress, they will be reinstated.
“Ultimately, whilst we are focused on a net-zero objective, there is no one size fits all approach; our engagement approach is nuanced, it is about listening to companies and understanding the challenges they face, as well as the potential opportunities ahead, in accelerating the pace of the transition at a global scale.”