ImpactAlpha, Oct. 14 – Out: Quiet engagement with executives. In: naming and shaming recalcitrant corporations.
As more institutional asset owners look for active “stewardship” of portfolio companies by their asset managers, Legal & General Investment Management has staked out an aggressive position.
“You need a stick,” says John Hoeppner, LGIM’s U.S. stewardship chief. “We’ve found a protest vote against chairmen has been quite effective.”
LGIM is expanding its Climate Pledge ten-fold to include 1,000 companies across 13 sectors. It’s also revamped its scoring system to be more quantitative and transparent, so companies know exactly what to expect. The bottom half of the companies have been already notified that they are lagging. Of those, LGIM will focus its engagement efforts on 60 “fence sitters” from the group that can help shift markets.
The asset manager will vote against directors “across our entire book” and potentially divest from companies that fall short of its minimum standards. The goal: achieving net-zero by 2050 in line with Paris goals.
“You’re going to see, in numbers, more directors held accountable and I think you will see faster change, ” Hoeppner told ImpactAlpha.
In the last few years, Legal & General Investment Management has staked out a reputation as an asset manager to contend with.
After President Trump announcement the U.S. would pull out of the Paris climate agreement, LGIM launched launched what Hoeppner calls, “engagement, with consequences,” a muscular corporate engagement campaign centered on climate action.
“If you were deemed a laggard, we were going to make your name public,” says Hoeppner. “We were going to vote against your chairman. And we’re going to divest out of our sustainability branded funds.”
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That strategy helped LGIM win a $50 billion mandate from Japan’s huge Government Pension Investment Fund, which has made active stewardship a larger part of its manager selection criteria. LGIM has won plaudits from corporate accountability group Climate Majority for its proxy voting record; in contrast, BlackRock was the least likely to vote against management among major asset managers.
Leaders and laggards among asset managers on climate stewardship
LGIM’s harshest consequence when engagement falls short is an “exclusion list” that bans companies inclusion in the firm’s sustainable funds.
Currently on the exclusion list: ExxonMobil, Hormel, Kroger, Sysco, Rosneft Oil, KEPCO, Loblaw, MetLife, Japan Post Holdings and China Construction Bank. Subaru was reinstated this year after improving on three out of five metrics.
A perhaps surprising standout in climate progress is mining conglomerate BHP, which is phasing out its thermal coal assets and has forged partnerships to support the decarbonization of steel and shipping. Oil major BP is becoming known for its ambitious strategy to shift away from fossil fuels.
In the finance sector, Lloyds Banking Group will cut by half the carbon it finances over the next decade, and Chubb and Commonwealth Bank of Australia have vowed to halt coal financing.
Overall climate scores have increased across most sectors since 2016, with utilities marking the biggest gains and food retail lagging.