Investing for good

LGIM Sustainability Summit gives reasons for hope

As the world prepares for the 26th United Nations Climate Change Conference (COP26) in November, Legal & General Investment Management (LGIM) assembled CEOs, climate action champions and investment specialists for a summit that highlighted how the mood in business is changing

1 Jul 2021

Meet our experts

Nigel Wilson

Group Chief Executive

Michelle Scrimgeour

Chief Executive Officer

Legal & General Investment Management

In his opening remarks at LGIM’s Sustainability Summit, Nigel Wilson, Group Chief Executive, Legal & General, set the tone for the day by emphasising the need for action.

“We all know we must work towards net zero by 2050 to prevent the most devastating effects of climate change,” he said, highlighting the importance of a green economy. “Our road to net zero focuses on funding the transition to support a low-carbon future and on delivering secure financial and societal returns.

“COP26 will be a seminal moment, but once the politicians and diplomats go home, it’s critical that we deliver. The time for pledging will be over, it’s the time for doing.”

Michelle Scrimgeour, Chief Executive Officer, LGIM, is at the forefront of private sector action on climate change as co-chair of the COP26 Business Leaders Group.

Opening a session on courageous leadership, Scrimgeour said: “I am inspired by the momentum I’m seeing as we debate and engage around how collectively we can play our part in addressing the challenges and actions needed to move us closer to meeting the net zero target.”

Continuing that momentum, Scrimgeour brought together the CEO of consumer goods giant Unilever, Alan Jope, and the CEO of multinational resources company BHP, Mike Henry. Both are leaders in their sectors, with Unilever products used by 2.5 billion people around the world every day and BHP operating mines that rival Greater London in length.

Unilever and BHP have both committed to net zero (BHP in its operational emissions), which Scrimgeour described as perhaps the only acceptable climate target for companies to set.  

Science is coming up with wonderful innovative solutions so that we can live in harmony with the planet and we as individuals are beginning to think about our own ecological footprint

Dr Jane Goodall, DBE

Environmentalist

Founder of the Jane Goodall Institute and UN Messenger of Peace

Why does sustainability pay?

The CEOs highlighted the economic benefits of going green, with Jope saying he didn’t see any trade-off between sustainable business and better financial performance. Jope was able to shed light on why sustainable business drives better financial performance within Unilever.  

“It’s got three elements to the business case,” he said. “The first is growth – our sustainable living brands are growing twice as fast as the rest of the portfolio because the consumer of today wants to choose brands with a responsible social and environmental footprint. The second is cost – we think we’ve saved about €1.1 billion from sustainable sourcing. A lot of that is from renewable electricity, which has become cheaper than fossil-fuel-derived electricity. Third, it reduces all kinds of macro and micro risk. The fourth element of the business case might be the most important, which is that it’s an absolute magnet for talent.”

Asked how he thought collective action from businesses can be accelerated, Jope said he hopes COP26 will be a pivotal point for the planet. “I think COP26 can maybe be where the private sector steps up.”

Jope added that climate change is already an issue for Unilever, both in its supply chain and in terms of demand. He thinks regulatory pressure will build around businesses’ carbon footprints, adding to the benefits of socially responsible investing: “We are very sure that a price on carbon will come in most parts of the world in the next five years. A lower carbon footprint will be a competitive advantage. So, the market will increasingly price sustainable businesses accordingly.”

Mike Henry described the advantages of being at the vanguard of sustainability, a theme that would recur throughout the Summit. “Benefit accrues through leadership. In a world where markets are focused on climate change or other aspects of environmental, social and governance (ESG), like communities, water, biodiversity and so on, the companies that are able to take a leadership position, we think will be the winners over time.”

The private sector’s climate moment 

In a session called ‘Making the impossible possible’, Nigel Topping, High-Level Climate Action Champion for COP26, spoke to Christy Lindsay, LGIM’s Head of Institutional Distribution.

Topping underscored that COP26, which will be held in Glasgow this November, should be a moment that shifts climate action up a gear. Alongside the technical negotiations, much emphasis will be placed on the private sector and local government. “We’re trying to make sure that in Glasgow evidence of momentum, not just ambition but momentum in the real economy, is front and centre so that it is about action, not just promises.”

That momentum, which several speakers at the Summit referenced, should have a galvanising effect on the wider business community. “The more people who commit to cleaning their whole value chain, the more it puts pressure on everybody else, the more it sends a market signal to everybody else,” said Topping, citing the example of a zero-carbon steel company. The steelmaker is yet to build its plant, but sales are already being made to car manufacturers and building companies that have net zero commitments.

“Cleaning the economy means accelerating down those [net zero] pathways in every sector and of course that needs finance. Because there are huge capital investments needed to drive that transition and of course that’s where you guys [LGIM] come in,” added Topping.

The winners are going to be the ones who catch that wave, who innovate earlier, who invest early enough, and the losers are going to be the ones who stick their heads in sand and hope that it won’t change

Nigel Topping

High-Level Climate Action Champion for COP26

Asked where he thought the investment opportunities lay, Topping brought the conversation back to timely innovation. “If every sector of the world economy is going to go through a complete transformation, then there are going to be huge winners and losers. The winners are going to be the ones who catch that wave, who innovate earlier, who invest early enough, and the losers are going to be the ones who stick their heads in sand and hope that it won’t change. That’s always been the way with industrial transformation.”

Topping described the transition to net zero as inevitable and urged asset managers to fully scrutinise companies’ climate actions. “Figure out which ones are seriously engaging in the transition and are likely to come out winning and which ones are paying lip service to it. It means scrutinising not just targets, but strategy and plans and CapEx allocation. If you back stasis you will lose.”

Cleaning up our act

A ‘fireside chat’ with Dr Jane Goodall, DBE, Environmentalist, Founder of the Jane Goodall Institute and UN Messenger of Peace, whose work to protect chimpanzees has redefined species conservation and inspired generations, concluded the main sessions at the Summit.

Speaking to Mark Johnson, LGIM’s Head of Institutional Client Management, Goodall described the changes she has seen over her 80-plus years living on this planet as shocking.

Drawing on her work studying the behaviour of chimpanzees, Goodall shone a light on the responsibility of humanity. “Because chimpanzees are closer to us than any other living creature – genetically 98.6% of our DNA is the same – that enables you to stand back and say, but we’re different, so what is the biggest difference? The biggest difference I think is the explosive development of our intellect, which makes it absurd that the most intellectual creature to ever walk the planet is destroying its only home.”

However, when asked about the role of individuals, she described how people are making a difference, citing the cumulative effect of small ethical actions that are moving us in the right direction.

Goodall highlighted the hope that can come from positive actions. “If you know that you’re making a difference because you’ve cleaned up a stream, you’ve cleared up litter, then you’re encouraged to do more, and your hope inspires others.”

Sharing her reasons for hope, Goodall said her number one was young people, as they are, “rolling up their sleeves and taking action everywhere”.

Her second reason is human intellect. “Science is coming up with wonderful innovative solutions so that we can live in harmony with the planet and we as individuals are beginning to think about our own ecological footprint.

“Then there’s the resilience of nature,” said Goodall, referring to landscapes she has seen devastated then restored, and animals that come back from the brink of extinction. 

“Finally, there’s what I call the indomitable spirit – people who tackle what seems to be impossible, who won’t give up and so often succeed or inspire others to carry on.”

Practical steps 

Other discussions and breakout sessions during the Summit looked at the practicalities of bringing about change. A session on ‘The power of engagement’ outlined how LGIM leverages its scale and influence to bring about change among portfolio companies through ‘engagement with consequences’.

Sonja Laud, Chief Investment Officer, LGIM, said: “We believe that through holistic engagement and collaboration asset managers can drive progress in markets, setting minimum standards and helping companies on their journeys to a sustainable future.”

Laud described engagement as our way to accept responsibility for addressing societal issues, adding: “LGIM’s purpose is to create better futures through responsible investment and our holistic engagement process is at the centre of our journey.”

The session went on to talk about the process involved, from understanding how companies are addressing specific ESG risks, to setting ambitious targets and demanding that companies meet them. Laud added that this is not just about climate change, but touches on a broad range of topics, such as health, income inequality and data security: it’s all part of LGIM’s contribution to inclusive capitalism.

Focusing on climate change specifically, Meryam Omi, Head of Sustainability & Responsible Investment Strategy, LGIM, and COP26 UN High Level Champion for Climate Action – Finance, explored how we escalate concerns, which includes voting against companies that do not meet certain criteria and divesting if necessary. Talking about these sanctions publicly is a key tool. “This is not just about the ones on the sanction list, everyone starts to watch out because they don’t want to be on that list.”

Our latest Climate Impact Pledge report was published at the same time as the Summit, announcing companies that we will sanction this year as well as case studies of our engagements. Dialogue is also a major part of our engagement process.

Breakout sessions looked at more technical aspects of responsible investing, such as how investors can actively influence ESG issues.

Action on climate change

In her closing remarks, Michelle Scrimgeour said: “When we conceived this event, our ambition was to share why and how the ESG agenda is so important. We’ve long said that inaction on climate change is not an option.”

Scrimgeour went on to confirm news of a global partnership between LGIM and Lewis Pugh, UN Patron of the Oceans and endurance swimmer who has seen first-hand the damaging effects of climate change. “He is calling on all nations and all of us to help protect 30% of the world’s oceans by 2030. This is an urgent mission that we at LGIM fully support.”

Scrimgeour added: “Through inclusive capitalism our goal is to build a better society, while improving the lives of our customers and creating value for our shareholders. Earlier we had the launch of our Climate Impact Pledge in which we share our analysis of those global companies who are leading the way in aligning themselves with the net zero target set out in the Paris Agreement, along with holding those companies to account who are not.”  

After an encouraging morning of discussion that touched on many of the benefits and practicalities of the stakeholder capitalism model, Scrimgeour gave her thanks to the speakers. She concluded by echoing Wilson’s sentiment earlier in the day and urging action, saying, “We cannot stand still.”