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LGIM outs climate change laggards after 12-month engagement

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Legal & General Investment Management (LGIM) has divested from six companies and plans to vote against a number of appointments at major firms because of persistent inaction on climate change.

It is the first time LGIM has revealed shareholder engagement activity relating to its Future World Fund, designed in collaboration with HSBC Bank’s UK pension fund.

The €1.1trn asset manager will vote against the re-election of the chair at eight companies across its range of equity funds: China Construction Bank, Rosneft Oil, Japan Post Holdings, Occidental Petroleum, Dominion Energy, Subaru, Loblaw, and Sysco Corporation.

The asset manager also sold stakes in six of these companies held in its Future World Fund.

A spokesman for LGIM said all eight of the companies were on an “exclusion candidate list”, but that at the relevant time Japan Post and Rosneft Oil were not in the underlying index for the Future World Fund so no action was taken on those stocks.

Introduced in 2016, the Future World Fund is a global equities index fund that incorporates a climate change “tilt”, designed to reduce exposure to companies deemed to be at risk from a shift towards low-carbon-based energy, and increase exposure to those companies deemed likely to benefit.

HSBC Bank UK Pension Scheme chose the fund as the equity default option for its defined contribution scheme.

In connection with the launch of the Future World Fund at the end of 2016, LGIM said it would hold companies to account on climate change through a targeted engagement process, working directly with companies to bring about change. Companies that failed to embrace the low carbon transition would be excluded from the fund. In all other funds where the manager could not divest, LGIM would vote against the chair of the board.

LGIM’s first engagement period since announcing the “Climate Impact Pledge” ran from April 2017 to April 2018.

The manager initially identified 84 of the world’s largest companies with which to engage, and it has since then assessed, scored and ranked them against more than 50 indicators.

Nearly three quarters (74%) of the companies responded to letters from the manager, which it said resulted in meetings with 61%.

“We believe these conversations contributed to a number of positive moves by firms, including Toyota, Wells Fargo and Australia’s Commonwealth Bank,” the asset manager said.

 

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