Legal & General Investment Management is getting tougher on companies when it comes to rating and sanctioning them on climate risk, according to its annual Climate Impact Pledge released Wednesday.
This year's climate risk assessment covers more than 1,000 listed companies that are responsible for more than 60% of greenhouse gas emissions. LGIM included 10 times more companies than previous years and will make the results publicly available to increase transparency of climate risk measurements.
Companies seen as falling short of minimum standards, such as comprehensive emissions disclosures or key sustainability certifications, will be subject to negative votes and possible divestment from select funds, LGIM officials said, promising to get tougher on both standards and sanctions, with the goal of spurring net-zero carbon emissions by 2050.
LGIM's metrics for assessing companies include overall governance, emissions targets and companies' climate-related lobbying activities. Scores for all sectors have improved since the process started in 2016.
"None of these metrics should be new" to the companies, said John Hoeppner, LGIM America's head of U.S. stewardship and sustainable investments, in an interview. Out of a universe of 13,000 companies held, the 1,000 companies rated represent those making the relevant data transparent. The 500 companies in the bottom half will be notified that LGIM will vote against the company's chairman, he said.
In 2019, LGIM divested from eight companies in its sustainable Future World funds, and its own fund. In May, LGIM said it would vote against the re-election of Exxon Mobil Corp. Chairman and CEO Darren W. Woods, citing "a lack of strategic ambition when it comes to climate change," and that it also voted to require the company to disclose its lobbying activities.
"The companies picked this time are not leaders or laggards but what we think of as the fence sitters," Mr. Hoeppner said. LGIM also plans to continue "intense engagement" with companies that may not be the biggest emitters but can influence industry standards. "It means they have to really have a clear plan for net zero by 2050," he said.
Companies that improve also get recognition. Seven of the 10 companies scored as the largest improvements since 2019 had been previously named laggards, and in some cases the improvement led to reinvestment.
Some of the highest year-on-year improvements globally were seen in Australia, Japan and South Korea, while in the U.S., LGIM found more companies explicitly discussing climate risks and opportunities, despite plans to withdraw from the Paris Agreement on climate change.