LGIM warns of ‘climate catastrophe’ as it takes action against corporate boards

The fund management division of Legal and General (L&G), Legal and General Investment Management (LGIM), is to continue to vote against boards where concerns remain around environmental-based issues.

In LGIM's latest corporate governance report, director of corporate governance Sacha Sadan said “the point here is that we are facing a climate catastrophe”.

As a result, the fund manager said it has been voting against boards, as well as working closely with pension fund trustees to meet new ESG-related requirements and guidelines, introduced by the Department for Work and Pensions in 2018.

“More and more people are realising this, especially as we have seen further evidence that the effects of climate change will soon be irreversible. This will affect economies, politics and, as a result, our clients’ assets all around the world. We all need to move faster,” he said.

According to latest figures, in the US, LGIM supported more shareholder resolutions on climate change in key votes that any of the world’s 10 largest asset managers.

Furthermore, a total of 14 funds were launched with ESG-related objectives as part of the ‘Future World’ range and 11,000 companies were assessed under LGIM’s ESG score.

Across the corporate governance spectrum, LGIM said it voted against 3,864 directors globally in 2018, up 37 per cent since 2017.

LGIM added that it will also be shining a spotlight on executive pensions, as companies progressively seek to use pensions as a way of increasing overall executive compensation.

“Absolute salaries do vary, but why should pension percentages be materially different between the top and bottom of an organisation?” the report said.

“We believe a misaligned approach to remuneration will ultimately hurt company performance and reputation. How can it be right for executives to be on 40 per cent pension contributions and the rest of the employees on 10 per cent? I think the simple option is to keep it consistent.

In a separate paper published today, 16 April, Willis Towers Watson (WTW) launched a call for action in an attempt to improve investment stewardship.

The group said it recognised the efforts made by stewardship teams across the industry, but added that the “commitment so far has been limited”, particularly in areas such as board quality, executive compensation, capital structure and climate risk.

WTW head of equities, Stephen Miles, said: “Stewardship is an underappreciated but critical part of corporate oversight. It is showing encouraging momentum across the industry and indexation managers are stepping up with good signs of progress.

“Still, there is a lot more to reach for with structural challenges to cut through given highly fragmented ownership interests.”

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