Legal & General Investment Management (LGIM) has continued to strengthen its stewardship efforts, by stepping up pressure on corporate boards around the world on a range of issues including climate change, remuneration, diversity and board governance.LGIM’s ninth annual ‘Active Ownership’ report reveals that over the course of 2019, the company continued to vote globally, opposing the election of more than 4,000 company directors, as it seeks to effect long-term positive change within the companies and markets in which it invests.
Sacha Sadan, Director of Investment Stewardship at LGIM, says: “In these unprecedented times, we are reminded of how interconnected the world is – but also that sustainability, good governance, and fair treatment of employees will be the building blocks of a better future. LGIM will continue to support and hold companies to account for their stakeholder responsibilities, taking a strong stance with regulators in support of improved market standards, and seeking collaboration to drive progress on the issues that matter to our clients and society at large”.
Climate change was the topic on which LGIM engaged most frequently with companies in 2019. Recognised as ‘one of the most outspoken fund managers over the climate crisis’, during the year LGIM supported more shareholder resolutions on climate change than any of the world’s largest asset managers, even co-filing a climate resolution at oil major BP, which helped to support the company in adopting industry-leading emissions targets.
In June, LGIM published its second annual ranking of corporate leaders and laggards under its Climate Impact Pledge engagement programme, taking voting and investment action against 11 companies that had failed to demonstrate sufficient action in addressing climate change, including Exxon Mobil and China Construction Bank. The report also highlighted examples of best practices – as well as examples of stewardship driving positive change with two companies which were divested from select funds in 2018 having made sufficient progress to warrant reinvestment in 2019.
Validating LGIM’s approach, independent analysis of large asset managers’ responsible investment capabilities found LGIM was one of only five worldwide to receive an A rating, with LGIM the highest-rated among UK, index and the 15 largest global asset managers.
Testimony to increased climate ambition across the L&G Group, LGIM Real Assets has also committed to achieve net zero carbon emissions for all its real estate properties by 2050.
LGIM is committed to improving executive pay practices and reducing income inequality at investee companies. Last year it opposed 35 per cent of pay packages globally and voted against many remuneration committee chairs for failing to address persistent concerns. LGIM has also continued to encourage companies to introduce a living wage.
As part of strengthened policies, LGIM will vote against companies where the pensions of newly appointed executive directors are not aligned with the workforce, and against companies where executive directors do not retain a significant amount of company shares for two years following their departure.
Sadan says: “The longer executives continue to have a stake in the business, the lower the risk of short-term management decisions. Our updated principles on shareholding requirements aim to achieve this, whilst encouraging more alignment with stakeholders.”
As the cornerstone of long-term value creation, LGIM has continued to encourage companies to implement robust governance structures. In 2019 LGIM opposed 15 per cent of director-related proposals globally, including:
• 776 cases of directors holding too many simultaneous board roles (‘overboarding’)
• 530 directors of Japanese companies and 365 resolutions at European companies due to concerns around independence
• 199 resolutions at North American companies due to excessive auditor tenure
In January, LGIM announced that it would vote against all companies where the CEO also serves as board chair, having long advocated for the separation of the roles. Last year, it supported 51 shareholder resolutions in the US asking for a split of the functions and cast 40 votes against directors where the board’s decision to combine the roles was done without the prior approval of their shareholders.
LGIM has long promoted the importance of diverse viewpoints and skills for company success. In 2019 it continued to expand its global focus on this issue, targeting companies with low levels of gender diversity.
• 51 US and 19 Japanese companies saw improvements in diversity following engagement
• LGIM voted against 76 directors in the UK, 41 companies in emerging markets and 56 directors in Asia Pacific for lack of diversity.
Sadan says: “Especially in testing circumstances, diverse boards can better challenge and support companies. We need directors to be able to focus on the significant responsibilities of their roles by not serving on too many boards, and to have the right checks and balances – including, crucially, not self-regulating as joint chair/CEO.”