LGIM strengthens its engagement efforts in 2022, focusing on climate change, public health, pay and diversity

April 25, 2023 - Legal & General Investment Management (LGIM), one of the world’s largest asset managers by assets under management,[1], documents in this year’s annual ‘Active Ownership’ report how it has voted and engaged with companies and policymakers over 2022 on a range of environmental, social and governance issues.

Published today, the global report reveals that LGIM cast over 171,000 votes at over 15,750 meetings in 2022 as it continues to drive positive progress to support the long-term sustainability of the economy, environment and society at large. 

As companies worldwide grappled with the fallout of Russia’s invasion of Ukraine, inflationary pressures, and volatile markets, LGIM continued to engage with companies – and hold them to account – on the most critical issues including climate change, biodiversity, health and board diversity whilst striving to raise standards. Highlights included:

• Environmental: In October 2022, LGIM expanded the scope of the Climate Impact Pledge more than fivefold, to rate in excess of 5,000 companies across 20 ‘climate critical’ sectors. The results of this expanded campaign will be published in June 2023.
• Social: In its first-year voting against FTSE 100 and S&P 500 companies with a lack of board-level ethnic diversity, LGIM engaged with eight investee companies and voted against one company for lack of ethnic representation. Illustrating that much more progress is needed to also improve gender diversity levels, LGIM voted against 70 FTSE 100 and S&P 500 companies for having all-male executive committees. Turning to health, and in recognition of the health and financial risks posed by anti-microbial resistance (AMR), LGIM also supported three shareholder proposals directly addressing this. With LGIM already co-filing a resolution at the McDonald’s 2023 AGM calling for the company to follow WHO guidelines on safe use of antibiotics, activity on this issue is set to continue in 2023.
• Governance: LGIM continued to campaign for living wages for workers, issuing an ultimatum to companies to disclose their living wage strategy by 2025.

In 2023’s AGM season, LGIM will be prioritizing its engagement activity on six ‘super themes’: people, nature, health, technology, governance and climate.

Michelle Scrimgeour, CEO at LGIM, commented, “As long-term stewards of our clients’ capital, it is our responsibility to engage with investee companies on critical issues and drive a corporate agenda that facilitates sustainable markets and economic prosperity. 2022 saw us more clearly define the engagement themes where we can have the greatest potential positive impact, ranging from climate and diversity to public health, developing clearer minimum standards against which we expect investee companies to comply. As a responsible investor, it is incumbent upon us to clearly signal to the market and our investee companies the actions we expect them to take to drive up market standards, and we are continuing to engage actively throughout 2023 across these priority themes.”

Significant expansion of LGIM’s climate and biodiversity engagement

As the war in Ukraine sparked a fundamental shift in the discourse around climate change, and the need to balance net-zero goals with a new imperative for energy security, LGIM ramped up its engagement efforts to facilitate the transition to net zero and protection of natural capital:

In 2022, LGIM voted on 99 climate-related shareholder proposals and supported 77. Of these, 57 were in North America, 12 in Japan and three were in the UK. Over the course of the year, LGIM voted against 32 (out of 48) management-proposed “Say on Climate” proposals. LGIM also identified 80 companies as subject to potential voting sanctions for not meeting its minimum standards under the Climate Impact Pledge, two companies were divested from within its Future World Range of strategies, and one was reinstated. While LGIM continued to apply pressure through engagement and voting sanctions, the number of companies subject to voting sanctions under the Pledge fell by over a third (35%) from 2021, in a sign of improved practices and disclosures, and an increased global focus on climate change.

Biodiversity loss continued to remain a critical issue for LGIM, with over 100 companies identified as subject to voting sanctions for failing to meet LGIM’s minimum expectation of having a deforestation policy or program in place. Voting sanctions will be applied from the 2023 AGM season.

Michael Marks, Head of Investment Stewardship at LGIM, commented: “We are fast approaching the point of no return when it comes to climate change, and the window to prevent significant and irreparable damage to the planet is rapidly diminishing. Alongside environmental devastation, the economic and geopolitical consequences of a delayed or failed transition will be seismic. We recognize the significant role companies must play in determining the success of the transition, so at this critical juncture, the importance of our role as responsible investors and stewards of our clients’ capital is greater than ever.”

Strengthening policies on boardroom diversity and executive pay

2022 was the first AGM season in which LGIM voted against FTSE 100 and S&P 500 companies due to a lack of board-level ethnic diversity. In 2022, it engaged with eight investee companies that were identified as having no ethnic diversity at board level, voting against one company for lack of ethnic representation. Voting sanctions will be applied again in 2023 if diversity at board-level is not improved.

In 2023, LGIM will broaden its engagement to smaller companies to ensure ethnic diversity at board-level, engaging with laggards within the FTSE 250 and Russell 1000 indices.

Illustrating that ever more progress is needed to improve gender diversity levels, LGIM voted against 70 FTSE 100 and S&P 500 companies for having all-male executive committees.

From 2023, LGIM’s expectations on gender diversity will strengthen further. To date, it has allowed for slower progress in North America given the market is starting from a lower base, however from this year’s AGM season, it will expect all US company boards to be made up of at least one-third women. In the UK, it will continue to apply voting sanctions to those FTSE 350 companies that do not have a minimum of one-third women on their boards.

Against the backdrop of the cost-of-living crisis, LGIM continued to urge pay restraint at an executive level, expecting director raises to be well below the average employee increases. Globally, LGIM opposed 56% of all pay-related proposals due to the companies not meeting its minimum standards for fair and appropriate long-term performance-based pay, an increase from 2021, as it strengthened its voting stance in a number of countries, particularly in the US. LGIM will also expect companies exposed to high levels of ESG risk to set tangible ESG objectives against executive remuneration.

Driving greater pay parity to address global poverty

LGIM continued to campaign for living wages for workers. An issue thrown into sharp focus following the long-term effects of the COVID-19 pandemic, inflation and the fallout of the Russia/Ukraine war.

• During 2022, LGIM held 38 company engagements with 23 individual companies to discuss income inequality.
• LGIM placed just over 100 votes on social and people-related matters, including labor rights, inequality and discrimination.
• LGIM joined the Platform for Living Wage Financials in 2022, to encourage and monitor investee companies on their commitment to enable living wages for workers in their supply chains.
• LGIM’s living-wage engagement focus has been on the food retail sector, where many employees are on low pay, and the companies themselves are less likely to have been impacted b the pandemic; these companies should therefore be in a better position to ensure their workforce is earning at least a living wage. LGIM joined forces with ShareAction to co-file a shareholder resolution at the 2022 Sainsbury’s AGM, asking the company to become a living wage accredited employer.

LGIM, together with other long-term investors, published an investor statement on the UK cost-of-living crisis. It set out a list of actions for companies to address the impact of the cost-of-living crisis on their employees, including prioritizing support for lowest paid employees by either increasing pay to match the real living wage or make one-off cost-of-living payments.

In 2022, LGIM also gave companies an ultimatum to disclose their living wage strategy by 2025. LGIM will vote against the annual report of those companies that fail to do so.

Recognizing AMR as a key systemic risk

The World Health Organization describes AMR as one of the top 10 global public health threats facing humanity today[2], already accounting for 1.27 million direct deaths in 2019[3], it is poised to result in a 3.8% loss in global GDP, an impact comparable to that of the 2008 financial crisis.[4]

LGIM believes the scale of action across both the public and private sectors remains insufficient to prevent catastrophic economic and human impacts.

LGIM used its votes during the 2022 AGM season to support those shareholder proposals which directly addressed AMR. At Abbott Laboratories LGIM supported the proposal requesting a report on the public health costs of antimicrobial resistance. It supported shareholder resolutions calling for a similar report from Hormel Foods Corporation and from McDonald’s for the second year running.

The COVID-19 pandemic has taught us that a delayed response to an urgent public health crisis has drastic consequences for both human life and financial security – LGIM believes it is essential that as caretakers of clients’ assets, it advocates for progress on this issue.

To read LGIM’s twelfth Active Ownership report in full, please click here.

[1]LGIM is a leading global asset manager, ranking 11th in the world. Source: IPE, Top 500 Asset Managers 2022.Taken from our FY results, see fy22-press-release_analyst-pack.pdf (legalandgeneral.com)

[2] The World Health Organisation, https://www.who.int/news-room/fact-sheets/detail/antimicrobial-resistance

[3] The Lancet ‘Global burden of bacterial antimicrobial resistance in 2019: a systematic analysis’, January 2022

[4] The World Bank, ‘Final Report, Drug Resistant Infections. A threat to Our Economic Future’, March 2017, World Bank

 

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Notes to editors

About Legal & General Investment Management

Established in 1836, Legal & General is one of the UK's leading financial services groups and a major global investor, with over £1.2 trillion in total assets under management* of which a third is international. We also provide powerful asset origination capabilities. Together, these underpin our leading retirement and protection solutions: we are a leading international player in pension risk transfer, in UK and US life insurance, and in UK workplace pensions and retirement income. Through inclusive capitalism, we aim to build a better society by investing in long-term assets that benefit everyone.

*Data as of December 31, 2022.

Further information:

Carolyn Gasbarra
Edelman Smithfield
630.220.0017
Carolyn.Gasbarra@edelmansmithfield.com

In the United Kingdom and outside the European Economic Area, it is issued by Legal & General Investment Management Limited, authorized and regulated by the Financial Conduct Authority, No. 119272. Registered in England and Wales No. 02091894 with registered office at One Coleman Street, London, EC2R 5AA.

In the European Economic Area, it is issued by LGIM Managers (Europe) Limited, authorized by the Central Bank of Ireland as a UCITS management company (pursuant to European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 2011 (S.I. No. 352 of 2011), as amended) and as an alternative investment fund manager with “top up” permissions which enable the firm to carry out certain additional MiFID investment services (pursuant to the European Union (Alternative Investment Fund Managers) Regulations 2013 (S.I. No. 257 of 2013), as amended). Registered in Ireland with the Companies Registration Office (No. 609677). Registered Office: 33/34 Sir John Rogerson’s Quay, Dublin, 2, Ireland. Regulated by the Central Bank of Ireland (No. C173733).

LGIM Managers (Europe) Limited operates a branch network in the European Economic Area, which is subject to supervision by the Central Bank of Ireland.  In Italy, the branch office of LGIM Managers (Europe) Limited is subject to limited supervision by the Commissione Nazionale per le Società e la Borsa (“CONSOB”) and is registered with Banca d’Italia (no. 23978.0) with registered office at Via Uberto Visconti di Modrone, 15, 20122 Milan, (Companies’ Register no. MI - 2557936).

In Germany, the branch office of LGIM Managers (Europe) Limited is subject to limited supervision by the German Federal Financial Supervisory Authority (“BaFin”). In the Netherlands, the branch office of LGIM Managers (Europe) Limited is subject to limited supervision by the Dutch Authority for the Financial Markets (“AFM“) and it is included in the register held by the AFM and registered with the trade register of the Chamber of Commerce under number 74481231.Details about the full extent of our relevant authorizations and permissions are available from us upon request. For further information on our products (including the product prospectuses), please visit our website.