Looking back at the world events of 2022 has reaffirmed the importance of our commitment to addressing climate change and achieving net zero carbon emissions. While the 1.5°C ‘Paris’ objective may still be viable, slow progress has meant there are now fewer plausible routes to achieving it. The window of opportunity is rapidly closing, which means we all have to work harder and faster to play our part in a successful climate transition.
As a large investor and investment manager, we have a significant role to play in financing the transition to net zero, and our 2022 Climate Report details our commitments to, and progress on, delivering on this. It’s the first climate report in which we’ve been able to state that we set science-based targets (SBTs), which have been validated by the SBT initiative; and we have expanded our focus to include nature and tackling biodiversity loss as we increasingly recognise the close relationship this has with tackling the climate crisis.
The three pillars of our climate strategy
Addressing climate change is one of our six strategic growth drivers and a key element of our vision of inclusive capitalism. It’s one of the biggest investment opportunities of our lifetime, and we have a real chance to make an impact as a business. However, not enough is being done globally and we know that inaction, and even delay, could have a devastating impact on global economies and society as a whole. We have modelled four climate pathways, based on different scenarios, from worst to best case, which helps us manage our risk and guides our strategic response.
We aim to deliver on our strategy via our three pillars, which we detail below.
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Invest
Through reducing the intensity of our financed emissions
Through investing in the transition
Our investments can play a crucial role in our planet’s future. In 2022, we reduced the economic carbon intensity of our investment portfolio by 5%. We welcome this reduction, and remain focused on our long-term net zero target, while recognising that progress towards this will not be linear.
Investing in green energy was a key part of 2022, and our investments included: Rovco and sister company Vaarst, a technology-led subsea surveying business which uses AI technology to revolutionise the management of subsea infrastructure and improve asset integrity; Brill Power, an Oxford University spin-out which is developing innovative battery management systems; and Kensa Group, in which we invested a further £8 million to support its scale up as a UK manufacturer of ground source heat pumps. We also led a funding round, raising $60 million for electric vehicle subscription service Onto.
Influence
Through the products we offer our clients
Through our engagement with the real economy
We remain committed to our long-term climate commitments but recognise we have a big role to play in encouraging others to do the same. In 2022, we increased the number of companies scored by our Climate Impact Pledge to 5,000+, from c.1,000 in 2021, and have undertaken 636 engagements with companies where addressing climate change was the specific focus (up from 246 in 2021).
We also launched multiple investment products aligned with net zero, and additional products in our Future World fund range. Furthermore, to continue our new focus on nature and biodiversity, we plan to introduce voting sanctions by the end of 2023 for all relevant companies who don’t meet our minimum expectations in relation to deforestation.
Operate
Through our operations
Through the businesses we control
Our operations are critical to the success of our climate risk management. From the office spaces our people use and the way they choose to travel, to the assets we manage and the homes we build, all these activities build and shape our carbon footprint and each presents both challenges and opportunities on our journey to net zero. During 2022, we reduced our operational carbon footprint (scope 1 and 2 – location) by 3%.
Our environmental targets and commitments
We also disclosed our performance against six wider areas of environmental objectives.
Strategic commitment
We will reduce our energy usage in line with our journey to net zero and source energy from renewable sources.
Target
By 2025, we will purchase 100% of directly procured electricity group-wide from renewable sources.
From 2030, our occupied offices (scope 1 and 2)1will operate with net zero carbon emissions.
1 - Applies to occupied offices where we actively control the management of utilities.
Progress in 2022
- We procured 85% of our electricity from renewable sources.
- Our occupied offices generated 2,902 tCO2e, which is a 32% reduction from our 2019 base year.
Strategic commitment
We will use hybrid working practices and technology to actively reduce the business miles we travel in line with our commitment to net zero.
Target
From 2030, our group-wide business travel will generate net zero GHG emissions.
Progress in 2022
Business travel generated 5,467 tCO2e. While this is an increase from 2021, when travel was significantly limited as a result of the pandemic, it is still a reduction from our 2019 base year.
We expect our business travel emissions
to increase in the short-term as we fully recover from the pandemic, before our planned reductions take place.
Strategic commitment
We will protect the natural resources we use through the implementation of sustainable procurement principles throughout our supply chain.
Target
By end of 2023, we will set a scope 3 category 1 (purchased goods and services) SBT, aligned with our net zero ambition.
Progress in 2022
During 2022, we worked with leading carbon consultancy EcoAct to model the likely carbon associated with our supply chain, to enable us to determine materiality. We will continue to work across our supply chain to better understand and shape the carbon associated with our procurement activities.
Strategic commitment
We will protect and minimise the use of water resources in the spaces we create and occupy.
Target
From 2022, new LGC housing developments submitted for outline planning permission will target 110 litres of water per person per day (lpppd), moving to 105 lpppd by 2023, in areas of water stress.
By 2030, our core occupied offices1 will consume a maximum of 22 lpppd in line with the Real Estate Environmental Benchmark (REEB), BBP.
Zero water pollution incidents.
Progress in 2022
- Zero water pollution incidents reported.
- Occupied offices 36 lpppd.
- L&G Modular Homes: 109 lpppd.
- IVG: 100 lpppd.
- CALA: 122 lpppd2
1 - Assessed at legal completion, not outline planning stage.
Strategic commitment
We aim to minimise and design our waste through the careful implementation of the principles of the circular economy.
Target
By 2025, we will purchase 100% of directly procured electricity group-wide from renewable sources.
From 2030, our occupied offices (scope 1 and 2)1 will operate with net zero carbon emissions.
Progress in 2022
99% of waste diverted from landfill.
Occupied offices’ waste reduced by 28% from a 2019 base year.
1 - Applies to occupied offices where we actively control the management of utilities.
Strategic commitment
Through the careful management and design of the spaces we occupy and develop, we are committed to creating diverse and valuable natural spaces and achieving overall net biodiversity gains. We are also committed to understanding and positively shaping the biodiversity impacts of the investments we make.
Target
In 2023, we will develop our biodiversity strategy, focusing on impacts and opportunities on development sites within our housing and Real Assets businesses.
By 2025, we will report on milestones to reduce agricultural commodity-driven deforestation1 related to our investments and increase our investment in nature-based solutions.
Progress in 2022
- CALA launched its Urban Wildlife Strategy2.
- LGIM has written to 300 companies from a set of deforestation-critical sectors within its portfolio, outlining its expectations and their performance against them.
1 - Focusing on palm oil, soy, beef, pulp and paper.
2 - Link: CALA: Urban wildlife strategy
The future
We remain committed to our long-term goals of net zero and pleased with the progress we’ve made in 2022, but there is much more that needs to be done. We believe we are well placed to play a role in the decarbonisation of the economy, which is why we have set ourselves challenging short- and long-term goals.
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By 2025
18.5% portfolio GHG emission intensity reduction1
Report on milestones to reduce agricultural commodity-driven deforestation2
All homes delivered by CALA will meet the 2030 industry target for embodied carbon3
- The UK government must deliver the Future Homes Standard to ensure higher energy performance and no use of gas boilers in new homes by 2025.
- While we are reducing our own energy demands, the decarbonisation of the grid is key to our net zero commitments.
1 - From a 2019 base year.
2 - Focusing on palm oil, soy, beef, pulp and paper.
3 - RIBA 2030 target: <625kgCO2e/m2 embodied carbon A1-5, B1-5, C1-4, incl. sequestration.
By 2030
50% portfolio GHG emission intensity reduction1
70% of AUM to be managed in alignment with net zero2
42% reduction in our scope 1 and 2 GHG emissions3
New homes capable of operating at net zero carbon
Alongside the UK government, we recognise the significant skills gap in the UK’s workforce to deliver net zero. We must witness a mobilisation of the supply chain, to have the skills and capacity to deliver low-carbon technologies, such as heat pumps, at scale.
1 - From a 2019 base year.
2 - Excludes sovereigns and derivative securities until such time as agreed methodologies exist.
3 - To account for the impact of the pandemic, our 2021 base year includes estimated emissions data from our managed Real Assets portfolio based on 2019 data, all other base year emissions are from 2021.
By 2050
Net zero asset portfolio in line with a 1.5°C ‘Paris’ objective.
Net zero GHG emission intensity across all our AUM.
Net zero operational carbon footprint.