Legal and general updates Climate impact Commitment to new requirements for sectors with high greenhouse gas emissions

Legal & General has updated its climate impact pledge to add two core demands from the three most carbon-intensive sectors.

It states that it expects disclosure of information on methane emissions from the entire oil and gas industry and does not want further expansion of thermal coal mining or power generation capacity for the mining and utilities sectors.

This is Legal & General’s eighth climate impact statement, following an annual engagement program that aims to raise standards and encourage companies to play a role in achieving the goals of the Paris Agreement.

This latest commitment comes after Legal & General Investment Management revealed that it has engaged with more companies on climate issues than ever before in the last 12 months – a total of 2,800 companies.

A total of 492 companies were found to be subject to board chair vote sanctions, up from 342 in 2023. The Climate Impact Pledge covers 86% of total greenhouse gas emissions related to LGIM’s corporate debt and equity holdings.

LGIM says that while progress has been made, the global pace of transformation remains insufficient. LGIM said it would continue to pursue a “commitment with consequences” approach as a result, under which it divested mining company Glencore and retailer TJX this year.

The divestment of Glencore follows extensive engagement with the company since its first climate impact declaration announced in 2016. LGIM filed a shareholder resolution with Glencore last year requiring the company to disclose how its projected thermal coal production is consistent with the Paris Agreement and its efforts aimed at limiting global temperature rise to 1.5°C.

LGIM expresses its concern that Glencore has not disclosed thermal coal production plans consistent with a net zero emissions pathway. LGIM separated from TJX over concerns about the lack of a zero-deforestation policy and insufficient disclosure of material Scope 3 emissions, which do not include emissions from important value chains.

These latest divestments mean that LGIM has now withdrawn its investments in 16 companies. They apply to all funds within £176 billion of assets under management, including Future World funds, LGIM ESG funds and all auto-enrollment insolvency funds with L&G Workplace Pensions and L&G Mastertrust.

LGIM says it continues to engage with the companies on the divestment list and will remove them from the list when sufficient progress has been made. However, it said no companies had been removed from the divestment list over the past year – although it added that a number of companies, including Loblaw, Invitation Homes and COSCO Shipping Holdings, progress has been demonstrated. LGIM says it continues to engage constructively with these companies.

LGIM has also released further data on its engagement program. Based on a quantitative assessment of over 5,000 companies included in the LGIM High GHG Emissions Sectors, 106 companies were identified as being subject to voting sanctions for failing to meet the New Core Expectations, while an additional 349 companies were identified as being subject to voting sanctions for failing to meet LGIM minimum standards regarding climate change. LGIM also raised expectations for the number of minimum standards Japanese companies had to meet from one to three.

LGIM also reached out to over 100 call manufacturing companies to meet and discuss transition expectations. It said it could apply voting sanctions to 37 of these companies, up from 43 in 2023, showing significant progress in the group of companies it is meeting.

During the 2024 season, LGIM also co-sponsored its first shareholder resolution in Japan, at Nippon Steel – the largest steel producer in Japan and one of the largest in the world by production – calling on the company to become a regional leader in climate change lobbying disclosures.

LGIM CEO Michelle Scrimgeour says: “As the world recently experienced its first 1.5˚C above average annual temperature, the message is clear: there is much to do to mitigate climate change and we need to act now.

“I have been encouraged by the progress over the last 12 months, with many of the companies we have worked with making significant progress in important areas. However, it is clear that the pace of transformation is neither smooth nor fast enough. Fighting climate change is not the role of the asset management industry alone: ​​it is an entire systemic transformation, the pace of which is influenced by global public policy, regulatory standards and the nature of energy demand. Radical cooperation is therefore key – to drive coherent action and decarbonization on a global scale.”

Stephen Beer, senior manager for sustainability and responsible investment at LGIM, adds: “The role of governance has never been more important – it is a key lever in the global effort to achieve net zero.

“We’ve found that our conversations with companies can become more difficult as time goes on; not necessarily more difficult, but more focused. We use tools such as voting and divestment to encourage companies to meet our net zero expectations, while sending a clear signal to the wider market. While divestment is one of many governance tools we use to drive change, we view it as a last resort and by no means the final stage of engagement. Our commitment will continue and if companies make sufficient progress, they will be reinstated.

“Ultimately, while our focus is on the net zero target, there is no one-size-fits-all approach; Our approach to engagement is differentiated, listening to companies and understanding the challenges they face, as well as the potential opportunities they face to accelerate the pace of transformation on a global scale.