LGIM DC business and L&G Master Trust commit to net zero

Legal and General Investment Management's (LGIM) Workplace Defined Contribution (DC) business and the L&G Master Trust have unveiled a roadmap to achieve net zero by 2050 across all of their auto-enrolment default investment options.

The roadmap will enable the master trusts’ auto-enrolment defaults to target reduced carbon emissions intensity, including the setting of minimum climate expectations for investee companies.

In particular, the framework has targeted a carbon emissions intensity reduction of 50 per cent by 2025, and a further 65 per cent by 2030 in target date default.

It is also aiming for a 65 per cent reduction in the growth phase, with the framework to be available to over 4 million DC scheme members and £53bn assets under management.

These targets are designed to reflect the beginning of alignment with the Paris Agreement goal to limit warming to 1.5C and will be reviewed "periodically" in-line with the best available science-based approaches and industry practice.

The group is expected to achieve reductions via 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.

Alongside a reduction in emissions, L&G will also be looking to increase exposure to climate solutions, such as sustainable forestry and renewable energy, within the relevant investment strategies.

The plans follow a year of “significant progress”, which has seen LGIM reduce the carbon emission intensity on default multi-asset funds by 23 per cent, as well as a 30 per cent reduction on its target date funds.

Around £11bn within its default funds equity exposure has also been transitioned from a standard market cap weighted index to tracking indices which enforce minimum standards on investee companies.

This includes applying the climate impact pledge, which includes divestment sanctions against investee companies that do not meet LGIM’s expectation, and has now been incorporated into all of the group's auto-enrolment defaults.

This has resulted in approximately £170m of selective divestments, including £75m from coal companies and Climate Impact Pledge divestments, with the group emphasising that all of these changes are necessary to address climate risk as a financially material risk factor to clients’ portfolios.

Indeed, the roadmap builds on L&G’s broader commitment to be net zero by 2050, and has also been highlighted as an "important milestone" in LGIM's previous pledge to work with clients to increase the proportion of assets managed under the net zero target.

Commenting on the plans, LGIM head of DC, Emma Douglas, said: “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 Master Trust.

"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.”

L&G Master Trust and independent governance committee independent chair, Dermot Courtier, added: “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.”

Make My Money Matter co-founder, Richard Curtis, has also highlighted the announcement as evidence that the race to the top amongst pension providers is “picking up pace”.

He continued: 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 per cent 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.”

L&G also clarified that all targets are relative to end-2019 data and are focused on the portfolios’ listed equity and publicly traded corporate debt exposure.

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