One of the world's largest asset managers Legal & General Investment Management (LGIM) is to ditch its holdings in four companies, including AIG and Industrial and Commercial Bank of China, due to "insufficient action to address the risks posed by climate change".
LGIM's latest annual Climate Impact Pledge report revealed today (15 June) that it will divest its holdings in Industrial and Commercial Bank of China, AIG, PPL Corporation and China Mengniu Dairy "for unsatisfactory responses to engagement and/or breaches of ‘red lines' around coal involvement, carbon disclosures or deforestation".
These companies are in addition to China Construction Bank, MetLife, Japan Post, KEPCO, ExxonMobil, Rosneft, Sysco, Hormel and Loblaw, all of which remain on LGIM's existing exclusion list and have yet to take the substantive actions required to warrant re-instatement.
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."
Michelle Scrimgeour, chief executive, Legal & General Investment Management and co-chair of the UK Government's COP26 Business Leaders Group, said: "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.
She added: "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.
Progress cannot be made by acting in isolation and we, as investors, have a real role to play in the responsible allocation of capital and acting as stewards to our investee companies to encourage greater progress to meet our overall sustainability goals."
In the past year I have seen multiple ways in which we at LGIM are tackling the climate change challenge - coming together in forums such as this, as well as the Net Zero Asset Managers Alliance launched in December and most recently the Glasgow Financial Alliance for Net Zero."
Yasmine Svan, senior sustainability analyst at LGIM, added: "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."
Launched in 2018, LGIM said this is the first Climate Impact Pledge report under its strengthened approach announced last year, which saw LGIM commit to expanding its engagement to 1,000 global companies in 15 climate-critical 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 £58bn 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.
US food retailer Kroger, previously on its exclusion list, will be reinstated in relevant funds following improvements in its deforestation policies and disclosure, as well as efforts to promote plant-based products which have a lower climate impact.
It joins companies such as automaker Subaru and oil major Occidental Petroleum, that have been reinstated in previous years.
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.
Almost three-quarters of this group responded 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 1000 large companies publicly available under a ‘traffic light' system, LGIM 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 subjected 130 companies to voting sanctions, with the banking, insurance, real estate and technology and telecoms sectors the most highly sanctioned through a vote.
Since LGIM launched the Climate Impact Pledge, it said it had 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 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.
While full compliance with LGIM's minimum climate standards was rare, even in the sectors which were most advanced along the low-carbon transition, the net zero momentum had gathered pace, with the overall number of companies setting net-zero targets almost doubled since October 2020.
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