LGIM makes climate ratings for 1,000 companies publicly available
LGIM stated that climate ratings (based on quantitative metrics) for over a thousand companies in key sectors will be available under a ‘traffic light’ system on its website. This assessment rates companies on metrics ranging from overall governance through to emissions targets and its climate-related lobbying activities. The UK-based asset manager will also increase ten-fold the number of companies covered, which are responsible for over 60% of the greenhouse gas emissions from listed companies.
"Inaction on climate change threatens the long-term stability of the market, but we know engagement with consequences can get companies to change", said Meryam Omi, head of sustainability and responsible investment strategy at LGIM and member of the COP26 High Level Champions Team – Finance. “Transparency is key – companies must be consistent in what they declare publicly and how they lobby governments behind the scenes. And investors must be transparent about how they assess companies. By making our climate ratings publicly available, we want to encourage companies to address gaps in their disclosures and strategies, whilst adding a layer of public accountability,” explained Omi.
In 2016, there was growing consensus that reaching net-zero carbon emissions globally by 2050 was the safest path to meet the goals of the Paris Agreement on climate change. That year, LGIM started engaging with 80 of the largest companies in the energy, transport, food retail and financial sectors, regarding their sustainable strategy. Companies with best practices were celebrated while the asset manager voted against and divested poor climate performers, including ExxonMobil, from its Future World range of funds.
In its latest pledge, LGIM, which has £1.2trn (€1.4trn) assets under management (AUM), pointed out that it will continue to vote against and divest companies failing to meet its minimum standards, for example, if they lack comprehensive disclosure of emissions or key sustainability certifications. The potential divestment applies to its Future World fund range, which has an AUM of approximately £9.5bn (as of 12 October 2020, then 0.8% of its AuM)). The asset manager also said that it intends to ‘ratchet up’ the stringency of both its standards and sanctions over time.
As governments around the world are set to announce new and ambitious climate policies ahead of next year’s COP26 conference, investors must also step up, said Michelle Scrimgeour, Chief Executive Officer, LGIM and member of UK Government’s COP26 Business Leaders Group. “Through our engagement programme renewed to align with the net zero challenge, we want to help steer companies and our clients towards success in a low-carbon world,” said Scrimgeour.
LGIM said that most sectors took positive steps, with climate scores increasing across most sectors since 2016. At a regional level, there has been overall progress in average test scores of most countries, with some of the highest year-on-year improvements in Australia, Japan and South Korea. However, LGIM’s research also uncovered a significant divergence between the leaders and laggards, with sectors such as food retail declining year on year – a huge concern for the British asset manager.