Companies across the six largest sectors improved their efforts to address the risks and opportunities presented by climate change over the last year, according to Legal & General Investment Management (LGIM)’s second annual ranking — but more work remains to be done, and five new companies will be voted against and divested from the Future World fund range due to unsatisfactory results, the investor says. LGIM’s assessment takes into account a wide range of indicators, from governance structures through to business strategy, targets and lobbying activities.
Following LGIM’s updated assessment in 2019, ExxonMobil Corporation, Hormel Foods, Korean Electric Power Corporation, Kroger and Metlife will be removed from the Future World fund. These are in addition to companies previously removed — China Construction Bank, Rosneft Oil, Japan Post Holdings, Subaru, Loblaw and Sysco Corporation — all of whom remain engaged but who have yet to take the substantive actions to warrant re-instatement, LGIM.
Most Engaged Sectors
LGIM, one of Europe’s largest asset managers and a major global investor, says that sectors under the most public scrutiny — oil and gas, utilities, and autos — have made great strides in terms of disclosure and targets. However, signs of stagnation can be seen within sectors such as financial and food retailers. This divergence is particularly stark within the US, as companies face a dichotomy between the federal stance on the Paris Agreement and other global, state-level and local initiatives to address climate issues.
LGIM looks at more than 80 companies covered by its Climate Impact Pledge. Companies under the pledge have been chosen due to their scale and public profile and their potential to raise the bar for their respective sectors, including oil and gas, mining, electric utilities, autos, food retail and financials. LGIM’s pledge aims to “name and fame” companies that have taken a lead in each of the sectors.
The investor is using the pledge to help it make decisions about investment. In June, 2018, LGIM voted against and divested out of eight companies from the Future World fund range for persistent inaction to address climate risk. Since then, LGIM engaged with all eight companies and, as a result of positive outcomes, Occidental Petroleum and Dominion Energy have been reinstated.
The Leaders & Laggards
According to LGIM:
Oil and gas: Equinor has agreed to provide more details around how its future investment plans in oil and gas exploration are consistent with the Paris Agreement. Royal Dutch Shell has adopted comprehensive emission targets, linked to executive pay, which include not just emissions from Shell’s operations, but also from the burning of its oil and gas products. Divestment candidate Exxon Mobil has not, however, met some of our key minimum requirements, including on emissions reporting and targets.
Mining: In 2018 Rio Tinto became the first major miner to own no coal assets. This was followed by a step change in lobbying. BHP Billiton has similarly indicated that coal is to be “phased out, possibly sooner than expected,” with the company having “no appetite for growth in energy coal regardless of asset attractiveness.”
Electric utilities: Xcel Energy is the first major US utility to announce plans to go 100% carbon-free, pledging to close its last coal plants a decade ahead of schedule. Korean Electric Power Corporation was the lowest scoring company in its sectors, particularly on measures of strategy and board composition. The company also showed a lack of willingness to engage and as a result has been divested from the Future World Fund range.
Autos: Daimler has committed to a zero-emissions new car fleet by 2039. For its Mercedes subsidiary, it aims for EVs to make up half of total sales in little over a decade. An industry first, this is coupled with the introduction of targets for full carbon emissions. There have been no new company divestments in this sector, but Subaru remains amongst those companies divested from following last year’s rankings. Whilst it has shown a willingness to engage and has made a formal commitment to the Paris Agreement, there are still significant areas for improvement.
Food Retail: LGIM commends Danone and General Mills for adopting comprehensive emissions targets. The sector has however made up a significant proportion of both last year’s and this year’s divestment candidates, amid concern that it is failing to show strategic awareness of the risks associated with climate change. Hormel Foods and Kroger are among the names divested from this year, following low scores on governance and strategy and a lack of engagement. Sysco and Loblaw will remain divested from, with substantive changes still required.
Financials: A number of companies are making positive improvements. Westpac, Citigroup, Commonwealth Bank of Australia and BNP Paribas are piloting climate change scenario analysis, with insurers Axa and Allianz also conducting scenario analysis on assets as well as introducing stringent restrictions on coal investments and insurance. Metlife is among the divestment candidates in this year’s ranking following no response to engagement attempts, low scores in most categories of assessment, lack of robust climate governance, poor risk disclosure and limited visibility over climate related opportunities. Both China Construction Bank and Japan Post Holdings will remain divested from due to a lack of sufficient disclosures on high-carbon sectors and emissions.