Taking action

Active ownership is the process of engaging with companies, regulators, policymakers, industry peers and other stakeholders around the world to help tackle issues which have the potential to affect society, the planet, and the long-term financial returns for those who invest with us – such as members of our pension schemes.

As a global investor, LGIM can use its influence to identify and improve on important ESG issues in the companies it invests in (those included in our internal funds that are managed by a Legal & General company), or through collaboration with policymakers. For example, LGIM can challenge a company to adopt more environmentally friendly policies. It can also engage with governments and regulators on ESG-related policy.

As a shareholder, LGIM can use its voting rights to both signal support for a company or to raise concerns over different issues including how it is governed, its business strategies and activities.

How it works

LGIM’s engagement strategy is focused on six ‘super themes’, each of which has its own underlying ‘sub-themes’. The super themes are:

• Climate
• Nature
• People
• Health
• Governance
• Digitisation

Voting against a company in its Annual General Meeting (AGM) is a powerful engagement tool with which to hold company boards to account and raise market standards. If a company doesn’t deliver sufficient improvements in ESG standards following engagement, LGIM can exercise its shareholder voting rights against particular proposals or decisions.

LGIM discloses the details of its vote instructions on a per-meeting basis, with the rationale provided for all votes cast against management.

Ultimately, LGIM believes in driving positive change from within and that engaging with companies leads to better outcomes. It also believes that automatically removing its investments at large scale (divestment) can be an ineffective tool that overlooks the problem that needs to be resolved. However, LGIM may stop or reduce its holdings in companies if they fail to meet minimum ESG standards expected and don’t demonstrate a required commitment to change.

Companies are divested up to the point where they do not cause index distortion and up to a pre-specified tracking-error limit. If the tracking error limit is reached, company holdings are reduced rather than fully divested from. Tracking error is the difference in performance between a fund and its benchmark.

Change is a journey delivered in steps not leaps

LGIM aims to tackle difficult and inter-connected ESG issues that could materially impact the value of our members’ pensions.  In some cases, change can happen swiftly. In other cases, it can require repeated efforts and time.  

The goal is to create better standards for the market at large to bring about more sustainable results over the long term.

ESG risks and opportunities are just one important consideration for companies. LGIM engages with companies in a way that considers the nature and sector of their business and the setting of realistic and meaningful goals and outcomes.

Information and data provided is based on LGIM internal data as at 31 December 2023. An engagement can cover more than a single topic.

For full details on LGIM’s engagement and voting approach, read the annual active ownership report. Here you will find example case studies and further detail, highlighting where LGIM has been successful in raising standards, and where more work needs to be done.

Watch the following video to find out how a pension can encourage companies to behave more responsibly. 

Download transcript PDF 180KB