Say on Climate: empowering shareholders to drive positive change

Engagement and voting are two key levers available to LGIM to support our commitment to align assets with a net-zero trajectory by 2050. Building on our well established climate engagement programme and voting policy, this year we are setting out our criteria for supporting management-proposed climate plans.

As we continue to seek to raise standards across the market, we will make full use of the tools at our disposal, and our intention is to escalate further in subsequent years by filing our own shareholder resolutions.

Fulfilling our responsibility

Climate change is one of the defining issues of our time. For investors, we believe it is a financially material risk. As such, LGIM has a responsibility to hold companies to account to protect our clients’ assets as well as safeguarding the planet.

In 2020 we strengthened and expanded our Climate Impact Pledge – our dedicated engagement programme on climate issues – to focus on around 1,000 global companies in 15 climate-critical sectors. Our pledge has the aim of achieving net-zero carbon by 2050.

In our first report under this new approach, we confirmed that:

• We would divest across select funds from four companies for failing to respond satisfactorily to our engagement efforts;
• A further nine companies remain on our existing exclusion list;
• We would vote against 13 additional companies as a sanction;
• Successful engagement has led us to reinstate one previously divested company into a range of sustainability-focused funds;
• During the 2021 proxy season, 130 companies were subject to voting sanctions for not meeting our minimum climate change standards.

Making net zero a reality will require commitment and concrete actions from governments, corporates and the finance sector. To play our part in this, our parent group, L&G*, is aligning its balance sheet to net-zero emissions.

While there is increasingly widespread acceptance of the net-zero imperative, the focus must now shift towards implementation rather than ambition. Just as a supertanker heading towards the rocks needs to alter course long before impact, leaving action on climate change until the last minute simply isn’t an option.

We are supporting companies now in their transition to net zero, using our expertise to help realise climate goals. As well as aligning with our core values, we believe the transition of investee companies is essential to help provide our investors with diversified portfolios that can continue to deliver the needed returns in the years ahead.

2021: Supporting the call for plans to be published and brought to a vote

In 2021, we publicly called on companies to propose a ‘Say on Climate’ vote, allowing shareholders to cast their verdict on the climate-transition plans proposed by management. We also supported a broader investor call for corporate net-zero transition plans, including a framework for net-zero alignment disclosures.

Over the 2021 AGM season, we voted against several high-profile proposals due to concerns that the transition plans proposed were not sufficiently robust or credibly aligned with net zero. The companies whose proposals we voted against included sector heavyweights such as Shell*.

2022: Setting out core requirements for LGIM to support a plan

This year, we are laying out our criteria for supporting management-proposed climate transition plans. We want to encourage ambitious and credible plans to be put forward, and we feel it is important to be transparent about how our voting policy will be applied. In keeping with this, we will strongly discourage companies from putting half-baked plans to a vote. We expect all climate-transition plans to include the following:

• A public commitment to net zero by 2050;
• Disclosure of short-term (up to 2025), medium-term (2026-2035) and long-term (2036-2050) targets covering scope 1 and 2 emissions and material scope 3 emissions;
• Disclosure of current scope 1, 2 and material scope 3 emissions;
• Credible targets that are aligned to a 1.5°C trajectory. Gaining approval and verification by SBTI (or other external independent parties as they develop) can help demonstrate the credibility and accountability of plans.

To assess transition plans comprehensively and objectively, we will lean on proxy providers, LGIM's own modelling, and broader internal and external expertise and data.

The road ahead: escalating via shareholder resolutions

From next year, we will increase the pressure on companies that fail to put suitably ambitious and credible transition plans to a shareholder vote by filing shareholder resolutions. This action will likely be in conjunction with Climate Action 100+, an investor-led initiative that aims to ensure the world’s largest corporate greenhouse-gas emitters take necessary action on climate change.

*For illustrative purposes only. Reference to a particular security is on a historical basis and does not mean that the security is currently held or will be held within an LGIM portfolio. The above information does not constitute a recommendation to buy or sell any security.