Legal & General Investment Management (LGIM) is taking climate change risk more seriously than ever, and is specifically analyzing data and engaging with companies in which its Future World funds invests to decide if it will continue doing business as usual with them.
Legal & General Investment Management Amercia’s (or LGIMA’s) Head of US Stewardship and Sustainable Investments John Hoeppner told CIO that he and his team, across strategies, will vote against a chairman where “[the company’s] disclosures seem laggard,” meaning companies who do not hold up to minimum industry-specific “green” disclosure standards that LGIM adopted for all of its fund strategies.
“We say you’re personally responsible for your company’s climate laggard,” Hoeppner explained.
A number of organizations are stepping up their efforts to promote a market which favors sustainable investments, such as the California State Teachers’ Retirement System (CalSTRS) and Pope Francis, New York City’s institutional investors, and a brand new climate endowment formed by a coalition of international investors seeking to perpetuate a “green revolution.”
“Within our Future World Fund, we incorporate a ‘climate tilt,’” Hoeppner said, in which LGIM will “decrease the weight of companies with carbon emissions, fossil fuel reserves, and increase the weight of companies with green revenues, e.g., renewable energy, water efficiency, etc.”
To enforce the company’s Climate Impact Pledge, it gathered data from over 80 of the world’s largest companies that have the potential to influence entire industries and assessed their governance structures, business strategies and targets, and lobbying activities. The sectors they examined include electric utilities, food retailers, financials, automakers, mining, and oil and gas.
In 2019, LGIM found ExxonMobil, Korean Electric Power Corp., Subaru, Kroger, Metlife, China Construction Bank, and others did not meet its standards and added them to a list of six laggards from last year.
“If you’re a laggard, we initiate a conversation through an individualized letter to companies and host follow-up calls. Think of it as strategic consulting in regards to climate risk, and we say where we think they can improve,” Hoeppner said. “If we don’t see any improvement after one year, they become eligible to become a laggard.”
LGIM considers third-party data as well as public statements from the company that address their position on climate. “We want the CEO or chairman to publicly acknowledge that climate change will impact their business model. But we’ve also learned—through past engagements—that companies make public statements then spend lobbying money that undermines their public statements.
“We also hear from companies [that we’ve invested in] whom are not ready to make public statements regarding climate change, but you being a large investor has access to the information first.”
A report from the firm noted that since last year’s results, there’s been an increase in the average scores across each of the six sectors which broadly represents improved climate risk transparency. Additionally, previously high-scoring companies scored even higher, “while others are clearly working to catch up.”
“It’s a structural process,” Hoeppner said, “many market commentators focus the debate on divestment versus active engagement. Surprisingly, we have observed that when you have a transparent process and constructive exchange, companies are willing to stay engaged even after being labeled laggards. All eight of the companies we named as laggards last year we have remained engaged with. This year, we immediately heard from a few of them who we called laggards.”LGIM’s Future World series launched in 2017 in the UK, and now spans 14 investment vehicles. They recently launched the first Future World fund in the US.
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