31 Mar 2021
L&G’s Workplace DC business, together with the L&G Mastertrust, have unveiled their proposed roadmap to achieve net-zero by 2050 across all of their auto-enrolment default investment options*, and builds on L&G’s commitment to net zero by 2050. This announcement coincides with the publication of LGIM’s tenth annual Active Ownership Report.
In December 2020, LGIM pledged to work with clients to increase the proportion of assets managed under a net zero target and today’s announcement represents an important milestone on this journey. The framework will be available to over 4 million DC scheme members and £53bn AUM and includes targets of c. 50% reduction in carbon emissions intensity within its Multi-Asset Funds and c. 60% for Target Date Funds, with the growth phase targeting 65%, with variation across funds depending on their investment strategy (see table below). Aligned to this, L&G has established a roadmap to enable the Mastertrust’s auto-enrolment defaults to target reduced carbon emissions intensity, including the setting of minimum climate expectations for investee companies. In 2019, the L&G Mastertrust was the first to offer an ESG default option and this commitment further represents the strengthening of L&G’s responsible investment offering for pension scheme members.
These targets are designed to reflect the beginning of alignment with the Paris Agreement goal to limit warming to 1.5°C and are expected to be reviewed periodically in-line with the best available science-based approaches and industry practice, such as the Paris-Aligned Investment Initiative. All targets are relative to end-2019 data and focused on portfolios’ listed equity and publicly traded corporate debt exposure.
Reductions are expected to be achieved using a combination of the use of climate transition/aligned benchmark indices in some index tracking funds, selective divestment where appropriate and a focus on re-shaping exposures within priority sectors. In parallel to reducing emissions, the relevant investment strategies will also seek to increase their exposure to climate solutions – such as sustainable forestry and renewable energy.
This announcement follows a year of significant progress in which LGIM has already achieved an estimated 23% carbon emission intensity reduction on default multi-asset funds (compared to what it would have otherwise been end of 2019) and an estimated 30% on its Target Date Funds, with a further 20% by 2025 and then a further 15% by 2030, all relative to end of 2019. It has also transitioned £11 billion within its default funds equity exposure from a standard market cap weighted index to tracking indices which enforce minimum standards on investee companies. This includes applying the Climate Impact Pledge, launched in 2016, which includes divestment sanctions against investee companies which do not meet LGIM’s expectations, which has been incorporated into all its auto-enrolment defaults. This has resulted in approximately £170 million of selective divestments, including £75 million from coal companies and Climate Impact Pledge divestments. All of these changes are necessary to address climate risk as a financially material risk factor to clients’ portfolios.
LGIM’s Destination@Risk model will further enhance our understanding and management of the risk profile of the funds against specific climate related scenarios and allows the robust measurement of the climate risk embedded in investors’ portfolios and their climate alignment. LGIM’s investment teams will be able to access the climate risk and temperature alignment forecasts of the Destination@Risk within the climate risk dashboard, enabling them to partner with clients to design and implement ‘Pathways to Paris’ solutions.
LGIM will also report to the L&G Mastertrust on the evolution of the temperature alignment of portfolios. We believe this additional reporting and newly announced targets, coupled with LGIM’s ongoing engagement activities on climate, are aligned with best practice recommendations for schemes’ climate targetsi:
Emma Douglas, Head of Defined Contribution at LGIM: "As the UK’s largest DC provider, we are fully supportive of achieving the target of net-zero by 2050 and the roadmap we are setting out today provides further detail as to how we plan to de-carbonise our own range of auto-enrolment defaults and those of the L&G Mastertrust. Climate change is the defining challenge of our generation and an area of great concern to many of our members. As the innovations and change required to deliver net-zero materialise, we will continue to evolve our roadmap for the coming years and use our proprietary framework to monitor the progress. Our roadmap to net zero is a significant step in assuring our members that their retirement savings are influencing real change."
Dermot Courtier, Independent Chair of the L&G Mastertrust and Independent Governance Committee: "Managing climate-related risks on behalf of our members is a crucial financial factor and a key priority for the Trustee Board. We are delighted that L&G has followed up on their commitment to net zero within the default funds with this clear ESG and climate change roadmap to enable us to ensure the long-term performance of our investments and improve member outcomes in retirement. These timelines and milestones will further support us in overseeing the progress to net zero on behalf of our scheme members and we look forward to collaborating with L&G as we progress on this important journey."
Commenting on Legal & General’s Net Zero commitment, Richard Curtis, Co-Founder at Make My Money Matter: "This ambitious announcement from Legal & General shows that the race to the top among pension providers is picking up pace. Since we launched our campaign to green the UK's pensions industry, schemes have been making more and more ambitious commitments, and L&G’s pledge shows what is possible when providers harness the power of our pensions to build a better world. Their target of reducing emissions by 65% by 2030 is particularly encouraging, and demonstrates the speed and urgency required by providers to combat the climate crisis. When I spoke with L&G members last year I heard loud and clear that they wanted to see their pensions go green, and it’s fantastic that these voices are being heard. Now is the moment for the rest of the industry to follow suit and ensure that by November’s COP26 summit everyone in the UK has a pension they can be proud of."
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.
*at 31 Dec 2022
Legal & General Investment Management
Legal & General Investment Management is one of Europe’s largest asset managers and a major global investor, with total assets under management of £1.29 trillion1. We work with a wide range of global clients, including pension schemes, sovereign wealth funds, fund distributors and retail investors.
For more than 50 years, we have built our business through understanding what matters most to our clients and transforming this insight into valuable, accessible investment products and solutions. We provide investment expertise across the full spectrum of asset classes including fixed income, equities, commercial property, and cash. Our capabilities range from index-tracking and active strategies to liquidity management and liability-based risk management solutions.
1Globally, we manage assets of £1.42 trillion or CHF 1.75 trillion as at 31 December 2021 (source: LGIM internal data as at 31 December 2021). The data combines assets under management by LGIM in the UK, LGIMA in the US and LGIM Asia in Hong Kong. Assets under management include securities and derivatives positions.
*at 11 Jan 2023
Past performance is not a guide to the future. The value of an investment and any income taken from it is not guaranteed and can go down as well as up, you may not get back the amount you originally invested. For illustrative purposes only. Reference to a particular security is on a historical basis and does not mean that the security is currently held or will be held within an LGIM portfolio. The above information does not constitute a recommendation to buy or sell any security. Views expressed are of LGIM as at 3 January 2023.
IMPORTANT LEGAL NOTICE
In the European Economic Area, it is issued by LGIM Managers (Europe) Limited, authorised 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: 70 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 Piazza della Repubblica 3, 20121 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 authorisations and permissions are available from us upon request. For further information on our products (including the product prospectuses), please visit our website.