Legal & General Investment Management (LGIM) will divest from four companies for failing to respond to the asset managers engagement efforts around climate change.
The four companies are AIG , Industrial and Commercial Bank of China, PPL Corporation and China Mengniu Dairy. LGIM says was a result of their “ unsatisfactory responses” to engagement and/or breaches of ‘red lines’ around coal involvement, carbon disclosures or deforestation.
This action follows previous divestments in China Construction Bank, MetLife, Japan Post, KEPCO, ExxonMobil, Rosneft, Sysco, Hormel and Loblaw — all of whom remain on LGIM’s existing exclusion list. LGIM says these firms have yet to take the substantive actions required to warrant re-instatement.
However LGIM has reinvested in US food retailer, Kroger, which was previously on its exclusion list, following improvements in its deforestation policies and disclosure, as well as its efforts to promote plant-based products which have a lower climate impact.
Information about these divestments was contained in LGIM’s latest Climate Impact Pledge report. Launched in 2018, this is the first report since LGIM strengthened its approach and commited to expanding its engagement activities with 1,000 companies globally in 15 ‘climate-critical’ sectors. These are the sectors that are responsible for more than half of greenhouse-gas emissions from listed companies.
Companies falling short of LGIM’s minimum standards will be subject to voting sanctions, as well as potential divestment from LGIM funds with £58 billion in assets, including funds in the Future World fund range, and all auto-enrolment default funds in L&G Workplace Pensions and the L&G MasterTrust.
LGIM announced last year that under its expanded approach it would pursue a programme of deeper engagement with 58 companies that are influential in their sectors but are yet to embrace the transition to net-zero carbon emissions. LGIM has been encouraged by the progress made over the past year, with almost three-quarters responding to its engagement campaign and 13 of the 58 companies now having a net-zero target in place.
Following its decision to make climate ratings for around 1,000 large companies publicly available under a ‘traffic light’ system, LGIM has further expanded its voting sanctions for companies that do not meet minimum standards, such as having board members with responsibility for climate issues, comprehensive carbon disclosures and greenhouse gas reduction programmes. During the 2021 proxy season, LGIM has subjected 130 companies to voting sanctions, with the banking, insurance, real estate and technology and telecoms sectors the most highly sanctioned through a vote.
Yasmine Svan, senior sustainability analyst at LGIM says: “Improvements in data and analytics have allowed us to increase our coverage and to enforce what we consider to be minimum standards with regards to climate risk management, through expanded voting sanctions, supplemented by our in-depth engagement with pivotal sectors. At the same time, as investors step up their scrutiny of companies, so too are companies raising their ambitions. We are pleased to be able to add to the number of companies reinstated in our funds following progress and will continue our engagement and collaboration to help increase overall standards across markets.”
LGIM’s chief executive officer Michelle Scrimgeour — who is also co-chair of the UK Government’s COP26 Business Leaders Group, says: “Climate change is one of the most critical sustainability issues we face and we fully support efforts to align the global financial system with a pathway well below 2°C.
“We have made a strong commitment to push forward this agenda across the different parts of the investment chain, from our engagement with companies and policymakers through to our own investment process and LGIM’s own commitment to net zero. Participating in forums like the COP26 Business Leaders Group, ahead of the pivotal climate conference in Glasgow later this year, has emphasised the necessity of coordinated action to address climate risk and steer society towards a sustainable future.”
Since LGIM launched the Climate Impact Pledge, it has seen positive progress in its overall climate ratings across markets and sectors. Since 2020, ratings for Asian companies have now overtaken North America in their average ratings, with the largest relative increase coming from emerging markets. However, less than a fifth of Asia Pacific companies and a third of North American companies fully meet the minimum climate standards enforced by LGIM.
The rankings have also revealed contrasting approaches by sector, with utilities and autos scoring the highest. In contrast, the steel, mining and aviation sectors saw the least improvements over the engagement period.
Whilst full compliance with LGIM’s minimum climate standards is rare, even in the sectors which are most advanced along the low-carbon transition, the net zero momentum has gathered pace, with the overall number of companies setting net-zero targets almost doubling since October 2020.