Zero

We said we’d target net ZERO emissions across all AUM by 2050

665

Our Investment Stewardship team engaged with 665 companies

£206.8 billion

We managed *£206.8 billion in responsible investment strategies

Active ownership in an era of uncertainty

The pandemic disrupted our lives in 2020 in numerous and profound ways.

In our tenth annual Active Ownership report, we outline the decisive action we took on behalf of your clients during this challenging period across a range of environmental, social and governance issues.

We gave particular attention to the near-term dangers posed by COVID-19 and the longer-term threat of climate change, while doubling down on our progressive stance on income inequality, diversity and board independence.

Without urgently tackling and reversing deforestation associated with food production, meeting the net zero challenge will be impossible. We have therefore engaged both governments and businesses on this vital issue.

At the national level, following steps by the Brazilian government to loosen environmental protections, in mid-2020 LGIM joined an investor coalition to engage senior Brazilian government officials directly. We expressed our concerns, warning of potential divestment from local food companies and even government bonds.

We have also engaged companies like consumer goods giants Procter & Gamble and Nestlé on this topic. In the former, we supported a shareholder proposal on the elimination of deforestation from its supply chain and encouraged the company to increase the percentage of sustainably certified pulp it used. With Nestlé, we engaged the company in 2020 on sustainability issues including water scarcity, packaging, recycling and its supply chain.

Sustainable food

Today, tech companies are integral to global society. The internet, mobile phones and social media are part of the fabric of our everyday lives. Their platforms are used by billions of people each day and have brought genuine benefits by improving access to information and transparency.

However, they also bring new challenges linked to complex issues such as the gathering, use and commercialisation of personal data, content moderation, extremism and terrorism, electoral manipulation and severe impacts on vulnerable and at-risk groups.

We have recommended that human-rights considerations are integrated into tech giants’ business strategies, policies and planning. As well as developing a set of investor expectations for global tech companies on human rights in collaboration with others, we joined a global investor alliance to encourage Facebook, **Alphabet and **Twitter to strengthen controls to prevent the livestreaming and dissemination of objectionable content.

Privacy and big tech

As part of a collaborative engagement with other investors, we have challenged FTSE 350 companies that had failed to meet the reporting requirements of Section 54 of the Modern Slavery Act, 2015.

Not only did we want to highlight the importance of eradicating modern slavery throughout the supply chains of FTSE 350 companies, we also sought to raise the importance of eradicating modern slavery across global business. A secondary objective was to encourage a greater degree of challenge on social issues, specifically making use of shareholder rights, as we feel that responsible investment currently does not focus enough on these concerns.

Separately, we had numerous engagements with Boohoo Group in the second half of 2020 to discuss its response to criticisms of poor practices in its supply chain. As a consequence, Boohoo announced its Agenda for Change programme, with a focus on improving supply-chain management, driving more responsible sourcing and transparency.

Modern slavery and fast fashion

Climate

Averting a climate catastrophe
Despite registering the largest annual recorded fall in greenhouse gases, 2020 may well have been the world’s warmest year on record. Wildfires in California, Australia and the Amazon painted a grim picture that the physical risks of a warming climate are intensifying.

Active ownership 2021 climate
We were ranked #1 among asset managers for our approach to climate change in separate independent reviews by NGOs ShareAction and InfluenceMap
ShareAction and InfluenceMap

On the fifth anniversary of the Paris Agreement on climate change, we committed last year to targeting net-zero emissions by 2050 or sooner across all AUM. We have also made our Climate Impact Pledge even more ambitious, encompassing a larger number of companies, with sanctions against those that fall short of our minimum standards.

We also continued to be a top supporter of 'climate-critical' shareholder proposals, according to Majority Action and enhanced our climate analytics and solutions for clients.

Strategies for sustainability

Throughout the year, we supported our parent company, Legal & General Group, in decarbonising the assets on its balance sheet. In addition:

  • We strengthened the way our fund managers and analysts use climate data and expertise, leading to tangible investment actions
  • We expanded our range of low-carbon investment solutions, including funds focused on clean energy and fossil-free strategies developed with leading asset owners
  • We continued to advocate for policies supporting ambitious climate action and a ‘green’ recovery

COVID-19 & healthcare

Responding to COVID-19
Good health is the basis on which societal wellbeing and prosperous economies are built. If COVID-19 has taught us anything, it is that the stakeholder model of responsible investing plays an increasingly important role in times of crisis.

Active ownership 2021 covid

As a long-term investor, therefore, we wrote to UK investee companies at the beginning of the pandemic to pledge our continuing support to boards that focus not just on shareholders, but on all stakeholders. By this, we mean a company’s workforce, its suppliers and the community in which it operates.

Last year, we also called on global pharmaceutical companies to accelerate research and development efforts and overcome potential barriers to rapid and widespread access to COVID-19 medicines and vaccines.

Responsible investing amid a pandemic

Early in the pandemic, we wrote to investee companies encouraging them to ensure employees and suppliers are retained, and to demonstrate restraint – for example by not awarding bonuses if they have had to lay off staff.

Alongside industry peers, we then asked global pharma companies to work with governments across all levels of income to ensure equitable access to COVID-19 vaccines, including sharing intellectual capital and manufacturing capacity. In addition:

  • As a responsible landlord with assets across many sectors including industrial, retail, leisure and offices, LGIM Real Assets provided rent relief to occupiers
  • We requested pandemic-related disclosures from companies, including information on risk management and employee safety
  • We joined an initiative to combat the spread of drug-resistant superbugs

Diversity

Action on diversity
We believe cognitive diversity in business – the bringing together of people of different ages, experiences, gender, ethnicity, sexual orientation, and social and economic background – is a crucial step towards building a better economy and society.

Active ownership 2021 diversity

We also view diversity as a financially material issue for your clients, with investment implications for the assets we manage on their behalf. For 10 years, we have been using our position to engage with companies on this issue, with our voting policies ratcheting up to oppose boards with no - and subsequently low levels of - gender diversity.

In 2020 we implemented a stronger voting stance on diversity at North American and Japanese companies, and broadened our focus beyond gender – announcing that we will be voting against the chairs of boards that lack ethnic diversity.

Global engagement

Around the world, we continue to work with other global investors to push for better representation and transparency on diversity policies. We have also taken action when necessary: we opposed 208 directors globally due to concerns over board diversity. In addition, last year:

  • We engaged the 44 S&P 500 firms and the 35 FTSE 100 companies whose board membership showed a total lack of ethnic diversity
  • We continued our work with the 30% Club UK Investor Group, seeking improvements at companies with only one woman on the board, less than 30% women on the board and an all-male executive committee

Responsible investing at LGIM

Our approach to responsible investing stems from – and helps inform – Legal & General Group’s vision for inclusive capitalism, which seeks to share the benefits of economic growth with as many people as possible.

These are our core investment beliefs:

active ownership 2021 report responsibility

Responsibility: We have a responsibility to many stakeholders. When we allocate capital, we conduct extensive research into potential environmental and societal outcomes

Active ownership materiality

Financial materiality: We believe ESG factors are financially material. Responsible investing is essential to mitigate risks, unearth opportunities and strengthen long-term returns

Active ownership 2021 positive outcomes

Positive outcomes: We strive to effect positive change in the companies and assets in which we invest, and for society as a whole

 

*Source: LGIM, as at 31 December 2020. Includes responsible investment strategies explicitly linked to ESG criteria, across both pooled funds and segregated accounts globally. The value of an investment and any income taken from it is not guaranteed and can go down as well as up, you may not get back the amount you originally invested.

**For illustrative purposes only. Reference to a particular security is on a historic 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.