Legal & General Investment Management (LGIM) has decided to apply its “engagement with consequences” programme across all its defined contribution (DC) default funds, with insights from member research a key motivating factor.
Previously the £1.2trn (€1.3trn) asset manager’s “Climate Impact Pledge” featured in some of its DC default funds – via the Future World range – but it will now be applied across the board, including the default funds for L&G Mastertrust and contract-based pension schemes.
These represent some 3.3 million members and £30bn in assets under management.
The move to apply the “Climate Impact Pledge” directly across all the DC default funds comes as LGIM has modified the targeted engagement programme to be more trained on the ultimate goal of achieving net-zero carbon emissions globally by 2050.
The changes made include expanding the numbers of companies and sectors covered by the pledge and increasing transparency by making climate ratings for about 1,000 companies publicly available on the LGIM website.
Meryam Omi, head of sustainability and responsible investment strategy at LGIM, said: “Transparency is key – companies must be consistent in what they declare publicly and how they lobby governments behind the scenes. And investors must be transparent about how they assess companies.
“By making our climate ratings publicly available, we want to encourage companies to address gaps in their disclosures and strategies, whilst adding a layer of public accountability.”
If companies continue to fall short of LGIM’s expectations following engagement, the asset manager sanctions them by voting against them across its entire book and divesting from their securities within some of its funds – now including all of its DC default funds.
Emma Douglas, head of DC at LGIM, said the incorporation of the expanded engagement framework into the DC default funds was “a significant leap forward and will mean that our DC investors can be assured their retirement savings are influencing real and positive change”.
Member research gave the asset manager confidence that making the move was the right thing to do, she said.
“We are finding the concept of ‘engagement with consequences’ really resonates with our members,” she added.
And while she hoped LGIM’s DC default funds would look more attractive to employers and members as a result of the Climate Impact Pledge application, “this is less of a commercial motivation than the right thing to do”, Douglas said.
The move to incorporate the pledge across all LGIM’s DC default funds comes as pension schemes face greater regulatory duties in relation to climate change.