Public concern around the dangers posed by climate change has reached unprecedented levels. Demonstrations on a global scale are forcing governments to take swift and decisive action to save our planet.
Tackling the climate emergency
Companies around the world are also waking up to the need to reduce carbon emissions to remain successful in a low-carbon economy. It’s clear that embracing sustainability makes business sense, not just to retain the support of customers and shareholders, but to avoid the wrath of regulators and policy makers. But investors have a responsibility too.
What can investors do to make a difference to the environmental crisis?
In 2017 we announced our Climate Impact Pledge – a promise to engage with over 80 of the world’s largest companies and hold them to account for how they are preparing their business models to meet global climate change goals. As a major investor in these companies, our access to the boardroom allows us to put pressure on those in charge to address the climate emergency.
We are a demanding investor, and we give companies ‘homework’ – practical, necessary steps companies need to take over the coming year and beyond. For example, we ask mining and utility companies to stop digging and burning coal for electricity – a highly polluting fuel responsible for millions of premature deaths and for heating up the planet. We are constructive, and understand that some changes will take time, but the urgency means we want to see credible plans being put in place today.
If companies fail to respond to our satisfaction, we use our rights as shareholders to vote against the election of their chair, which forces the board to sit up and take notice. We may also exclude them from selected funds until they get their house in order.
In 2018, we announced eight companies will be excluded from our Future World fund range for failing to reach the standards of our Climate Impact Pledge. A year later, we’re pleased to report that all of these companies are much more engaged, with two US companies - Occidental Petroleum and Dominion Energy - now having made sufficient progress to be welcomed back.
In fact, from automakers announcing bold plans to electrify their vehicle fleet to banks increasing their ‘green’ loans, we are seeing encouraging news coming from all sectors.
However, progress is not uniform, and we’ve also identified a further five companies as candidates for exclusion: oil major ExxonMobil, utility Korean Electric Power Corporation, food companies Hormel Foods and Kroger, and insurer MetLife.
These names are in addition to last year’s exclusion candidates - China Construction Bank, Rosneft Oil, Japan Post Holdings, Subaru, Loblaw and Sysco Corporation – companies which, despite some good signs, have yet to take the substantive actions to justify reinstatement in the funds.
Why the Legal & General Future World range?
Our actions are sending a clear message to these companies: if companies are ignoring climate change risks, their shareholders will vote with their feet. We do this on behalf of all our customers, who will all benefit, collectively, from a more sustainable financial system.
But we realise that some of our clients might wish to take a stronger stance through their investments. Funds in our Future World range will invest more in companies with high environmental, social and governance standards – so that your money can directly reward good corporate behaviour and force companies to step up.
Please note the information, data and any references in this article were accurate at the time of writing. Please check the date of the content if you’re looking for up to date investment commentary or tax-year related information.