Passive Investments and ESG
The Funds Investment Strategy includes an allocation to a range of investment funds managed passively by Legal & General (LGIM).
Passive management is an investing strategy that tracks a market-weighted index or portfolio. Passive management is most common on the equity market, where index funds track a stock market index, but the Fund also holds two passive bond portfolios.
In total the Fund has six regional market capitalisation equity portfolios, one global fundamental equity portfolio, two bond portfolios and six Future World equity portfolios.
The six regions covered by the market capitalisation funds and future world funds are:
- United Kingdom (UK)
- Europe (ex UK)
- North America
- Asia (ex Japan)
- Emerging Markets
In addition, the fund is invested in a global fundamental equity fund which seeks to weight the companies in the portfolio using a range of metrics rather than purely market capitalisation.
Future World Funds (ESG funds)
During 2020 the Fund moved £650 million from market capitalisation funds to the LGIM Future World Equity Index Funds. These Funds provide similar performance and risk characteristics to the equity markets through an indexed fund which allocates more capital to those companies with good credentials on a range of ESG scores, including climate change. This product excludes investments in pure coal mining companies and reduces the exposure to high carbon companies, including fossil fuel companies.
Annual Active Ownership report
LGIM's Active Ownership Report sets out their approach to stewardship and the activities during the year. The report:
- identifies key themes and emerging governance topics and explains how they have responded to these during the year, including through company engagement
- provides progress on previously identified topics, including setting out company engagement activity undertaken
- includes detailed case studies of company engagement activity
- provides a regional update on activities in certain markets and more case studies of voting and engagement activities
- summarises the work with other associations and memberships.
Quarterly ESG Impact report
On a quarterly basis LGIM provide an ESG Impact report providing detailed case studies of the voting and engagement activities undertaken and/or concluded.
The latest available report is available at the following link: Responsible Investing | LGIM Institutional. The reports for the prior 3 quarters prior are also available online at the following link: Active ownership report 2020 | ESG | LGIM Institutional.
Climate Impact Pledge
Legal & General's (LGIM) longstanding climate engagement programme, the Climate Impact Pledge, is linked to tangible voting and engagement sanctions introduced in 2016. The revised Climate Impact Pledge 2.0 was launched in October 2020, where they made the targeted engagement programme even more ambitious. Details of LGIM's Climate Impact Pledge score can be accessed here.
Please also refer to the LGIM's Climate Impact Pledge: the 2021 results (pages 12-16) which outlines key areas of focus and a sanction list of companies that have persistently fallen short of the minimum standards or have been included due to a lack of response to engagement requests.
LGIM have strengthened our approach by expanding the coverage of our pledge from 80 to 1000 companies in climate critical sectors, which now accounts for circa 60% of all GHG emissions from listed companies. Furthermore, climate ratings for c. 1000 companies are publicly available under a 'traffic light' system to allow companies to address gaps in strategy and disclosures. The approach also includes a new engagement model - focused on large companies with poor scores relative to their scale - to help raise standards across market.