If Greta Thunberg doesn’t shame you, Legal & General Investment Management will
The UK’s biggest fund manager has named 299 climate offenders and pulled its investment from Cosco. That’s a marker of things to come
Even if you’re as tired of environmental stuff as Tor Olav Trøim, you’ll soon find out that the more polluting you are, the more it is going to cost you to borrow
THE top brass at Legal & General Investment Management are probably not much given to disrupting the world snooker championships, gluing themselves to the M25, or throwing tomato soup at Van Gogh paintings. Even in their own time.
But in terms of practical impact on the mitigation of climate risk, the decisions of firms such as the UK’s largest asset manager are arguably more pertinent than every publicity stunt ever mounted by Just Stop Oil and Extinction Rebellion put together.
LGIM manages funds to the value $1.4trn, roughly equivalent to the US federal deficit last year. That’s a lot of money, and it is no longer content to leave the cash quietly sitting in companies so long as it generates steady returns.
It is increasingly vociferous in calling out perceived environmental transgressions, as attendees at the recent annual general meeting of oil major ExxonMobil found out.
In its latest move, LGIM has published a 299 problem list of businesses deemed not to meet minimum standards on climate issues and withdrawn investments from 12 of them. Those sanctioned in this way include a big-name shipping company, namely state-controlled Chinese giant Cosco.
Ethical considerations and/or heartfelt concern for the future of life on this planet are all very well, up to a point. But more importantly, LGIM is making a straightforward case from its self-interest as a thinking capitalist.
Delaying the shift to a low-carbon economy could leave global equities more than a third lower than in a rapid transition, it points out, and a quarter of companies that currently issue investment-grade bonds face downgrades if we don’t get to net zero by 2050.
Losing the backing of a UK investor is neither here nor there for Cosco, which while stock listed in Hong Kong and Shanghai, is ultimately owned by the Chinese government.
But most Lloyd’s List readers do not work for shipping companies ultimately backstopped by the world’s second most powerful state, and need to be aware of what is going on here.
This is a clear sign that investors are making choices based on climate alignment plans, and supports what we have been contending for some time now. Capital is going to be increasingly limited to those on the wrong side of the climate curve.
Previous announcements of this ilk, from the likes of Larry Fink at BlackRock, have pointed to an intent to hold companies to account. But they have fallen short of explicitly naming companies that don’t come up to scratch, let alone pulling investments.
There are some asset managers who have divested from specific sectors, most notably the Norwegian sovereign wealth fund, which announced in 2019 that it would ditch from oil and gas exploration. But even here, the move was heavily caveated, in a way that still allowed plenty of wiggle room.
Another bucket of asset managers has announced transition finance strategies that still allow them to work with heavy-emitting sectors, ostensibly to help them get on to a Paris-aligned path.
Cynics will detect here the workings of cakeism, allowing funds to virtue signal their exacting environmental expectations while still taking the dividend cheques anyway.
What LGIM has done is different from that. The succulent jam-filled Victoria sponge has been altogether binned.
Cosco’s climate targets are not ambitious, but they are no less ambitious than most of their peers. There is every chance that other shipping companies will feel the heat from shareholders over their exposure to Scope 3 carbon emissions.
Member of the Net Zero Asset Owners Alliance and the Net Zero Banking Alliance have goals in line with the United Nation’s High-Level Expert Group on the Net-Zero Emissions Commitments of Non-State Entities, implying a new level of scrutiny and ever tightening standards.
Greta Thunberg does not have a choice of lucrative non-executive directorships at prominent fund managers just yet. That will no doubt please Tor Olav Trøim, in the news this week for being “tired as sh*t” with environmental policies and boardroom diversity.
But even the militantly anti-woke among us will be forced to note that the more polluting their companies are, the more it is going to cost them to borrow.
If LGIM’s move does not quite set a new benchmark for financial climate activism, it is an interesting marker of things to come.