Case study by Legal & General Investment Management
Investor: Legal & General Investment Management
HQ: London, UK
Operations: Investment manager
USD AUM: $1,330 billion (as at 31/12/2017)
Asset mix: Global equities, fixed income, index, multi-asset, real assets
LGIM’s stance on climate change
Climate change represents a material systemic risk for long-term investors. This is why LGIM welcomed the international Paris Agreement on climate change, whereby governments have agreed to pursue efforts to limit the global temperature rise to “well below” 2 degrees Celsius (compared to the pre-industrial era). The policy signal is clear: the world is embarking on a transition to a low-carbon economy and companies across all sectors must adapt their business models to be resilient in the face of this transition. As one of the world’s largest asset managers, LGIM is using its scale to support and accelerate the transition to a sustainable future, being ranked second globally for the management of climate risk within our investments.
The Climate Impact Pledge
Our belief that climate change represents a material risk is reflected in our voting and engagement activity with the companies in which we invest. To encourage companies to think strategically about the risks and opportunities presented by climate change, we launched our Climate Impact Pledge in 2016 – a systematic way of assessing, ranking and tracking companies’ ability to withstand and benefit from the challenges of climate change.
The companies covered by the pledge include market leaders in the sectors which hold the key to a successful low-carbon transition, from resource mining to finance. Companies undergo a rigorous assessment process, which takes into account their public statements on climate change, their governance structures and business models, as well as their overall levels of transparency.
Importantly, we rely on independent data provider InfluenceMap which analyses the lobbying activity of companies. The data captures whether companies are supportive of climate action, and how intense their level of engagement with this issue is. This allows us to check what companies say about their commitment to climate change against what they do at the level of influencing government policy. The data is used not only in our engagements, but also as an input into one of our funds, the Future World Fund. The fund incorporates a climate “tilt” which gives investors greater exposure to companies that are likely to benefit from the transition to a low-carbon economy.
Why we supported shareholder resolution no.20 at the company’s AGM
For several years now, we have been engaging with Rio Tinto on environmental issues. The company recognises “that climate change is occurring and is largely caused by human activities”. We welcomed the disclosure of the trade associations and industry bodies Rio Tinto is collaborating with and the level of detail on the company’s involvement with them; however, we expect to see detailed public clarification of the differing positions on climate and energy policy between Rio Tinto and the linked associations/bodies. This will assure investors that what Rio Tinto publicly states is not diluted or contradicted by the organisations it affiliates with. As such, LGIM voted in favour of resolution No. 20. This is in line with LGIM’s record as a consistent supporter of climate change resolutions.
LGIM will continue to engage with the company around its lobbying and other climate-related activities.
Converging on climate lobbying: aligning corporate practice with investor expectations
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Case study: Legal & General Investment Management