Lack of action on climate results in four new corporate divestments by LGIM

Wind power from above

The UK’s largest asset manager, Legal & General Investment Management, is set to divest from four companies over insufficient action on climate risk.

Over the past year, the USD1.7 trillion asset manager has stepped up its engagement on climate risk, targeting 1,000 global companies across sectors including energy, mining, and aviation.

Industrial and Commercial Bank of China, AIG, PPL Corporation, and China Mengniu Dairy have been singled out for divestment because of “unsatisfactory responses to engagement and/or breaches of ‘red lines’ around coal involvement, carbon disclosures or deforestation”, according to LGIM.

Another 130 companies are subject to voting sanctions for not meeting LGIM’s minimum climate-change standards, during the 2021 proxy season. Firms in the banking, insurance, real estate and technology and telecoms sectors were the most highly sanctioned.

“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,” says Yasmine Svan, senior sustainability analyst at LGIM. 

“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 says that some companies have stepped up their climate strategies as a result of deeper engagement. Almost a quarter, 22 per cent, of LGIM’s “priority” engagement companies have now set a net zero target.

Meanwhile, previously excluded US food retailer Kroger 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. 

China Construction Bank, MetLife, Japan Post, KEPCO, ExxonMobil, Rosneft, Sysco, Hormel and Loblaw are among the companies remaining on its exclusion list.

Michelle Scrimgeour, LGIM’s CEO, who is also co-chair of the UK Government’s COP26 Business Leaders Group, comments: “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.”

She adds: “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.”

Certain sectors have emerged as leaders and laggards in the transition to net zero. In particular, LGIM highlights the progress made by utilities firms, which have been scaling up their use of renewables and phasing out thermal coal.

Automakers have also made progress, with Ford and Honda announcing net-zero 2050 targets, while General Motors has committed to carbon neutrality by 2040. 

LGIM also spotlights the banking sector, with JPMorgan Chase & Co announced plans to align its financing of three sectors with the goals of the Paris Agreement.

‘Laggard’ sectors include food retailers, cement makers, chemical manufacturers, and aviation, according to LGIM.