For LGIM, active ownership is the process of engaging with companies, regulators, policymakers, industry peers and other stakeholders around the world to help tackle issues which have the potential to affect society, the planet, and the long-term financial returns for those who invest with us – such as members of our pension schemes.
These issues include things like climate change, healthcare, income inequality, or diversity and inclusion. They are often referred to collectively as environmental, social and governance matters or ESG factors.
For more than 20 years, LGIM’s Investment Stewardship team has engaged and campaigned on key ESG issues, escalating action when necessary to help achieve better standards. As a shareholder, LGIM can use its voting rights to both signal support for a company or to raise concerns over different issues including how it is governed, its business strategies and activities.
Here’s how it works: To help your savings grow, LGIM invests our members’ pensions in one or more funds containing one or more asset classes. Asset classes typically include equities (shares in companies), bonds (loans to companies and governments), cash or property. As a global investor, LGIM can use its influence to identify and improve on important ESG issues in the companies it invests in, or through collaboration with policymakers. For example, LGIM can challenge a company to adopt more environmentally-friendly policies. It can also engage with governments and regulators on ESG-related policy.
This active ownership approach supports Legal & General’s vision of inclusive capitalism, where the benefits of financial and economic growth are shared as broadly as possible. This is a way of doing business where profit and purpose pull in the same direction.
LGIM engages with companies – across the funds it directly manages – on environmental, social and governance (ESG) issues, highlighting risks and opportunities, both short-term and longer-term.
Engagement can be triggered in a variety of ways, such as writing to companies to outline LGIM’s expectations, scheduling meetings with companies, researching and analysing responsible investment themes and voting issues, or following a news story about a company that LGIM believes requires examination. LGIM speaks with both management and non-executive directors, although initial contact is usually with board directors and chairs.
Voting against a company can also be a powerful tool to help address issues that affect wider society and the planet, as well as the potential value of people’s investments, such as our members’ pensions. If a company doesn’t deliver sufficient improvements in ESG standards following engagement, LGIM can exercise its shareholder voting rights against particular proposals or decisions. Ultimately, LGIM believes in driving positive change from within and that engaging with companies leads to better outcomes. It also believes that automatically removing its investments at large scale (divestment) can be an ineffective tool that overlooks the problem that needs to be resolved.
Key engagement themes in 2022 included: