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Legal & General Investment Management (LGIM) plans to vote against the reappointment of the chairmen of eight global companies, including China Construction Bank, to voice its concerns about their slow progress on climate change.
LGIM introduced the Climate Impact Pledge in November 2016, which focuses on the efforts companies are making to address climate change and transition to a low-carbon economy. Initially, this saw the asset manager engage with 84 of the world’s largest companies across different sectors and geographies that can make a difference to the 2°C target set at the Paris Agreement.
LGIM has assessed, scored and ranked these companies against more than 50 indicators, including whether they have a corporate statement that recognises the impact of climate change, whether they are transparent on their carbon contribution and whether the board composition can help to drive change.
As part of this initiative, LGIM wrote to the 84 companies last year and noted that a quarter failed to respond, including China Construction Bank and Rosneft, prompting the fund manager to escalate its action.
The fund group is set to use its vote at the annual general meetings of these companies, alongside another six. They include logistics company Japan Post, electricity and natural gas supplier Dominion Energy, and Russian oil company Rosneft.
LGIM said Dominion Energy of the US, China Construction Bank and Japanese car manufacturer Subaru scored badly in several categories of their climate change policies, including business strategy.
The asset manager also criticised another US energy company, Occidental Petroleum, for having no plans to report total emissions. Meanwhile, Japan Post and food retailer Loblaw Companies had poor climate disclosure and another food retailer Sysco Corp lacked a climate change policy altogether.
The management team behind LGIM's 'Future World' fund range is planning to go one step further by selling out of these eight companies because they believe are not doing enough on climate change.
'We engage with companies to positively influence their governance, strategy and transparency. Divestment is a consequence but it is not the aim,' said Meryam Omi, head of sustainability and responsible investment strategy at LGIM.
'We want to show that the transition to a low-carbon economy is possible and work with companies towards this goal,' she added.
It wasn't all bad news, however. LGIM's letters to the 84 companies resulted in meetings with 61% of the companies. The asset manager believes that these conversations contributed to positive outcomes at the firms.
For example, Toyota has endorsed the 2°C Paris target and announced plans to make all cars available as either electric or hybrid models by 2025.
In addition, LGIM highlighted companies which are making significant progress and leading initiatives to address climate risk. They include Spanish utility Iberdrola, which has lobbied for the European Union to raise its carbon price.
Meanwhile, oil and gas major Total will put a climate-compliant 2°C scenario at the centre of its strategy and will increase its focus on renewables and natural gas.
LGIM also pointed to food and drink company Nestlé's targets to reduce greenhouse gas emissions by 2020, in line with the Paris Agreement.