An introduction to responsible investing

An introduction to responsible investing 

Slide 1 - An introduction to responsible investing 

Welcome and introductions. 

Housekeeping for the webinar.  

Slide 2 - Important information 

 Risk warnings: 

• This is a general education presentation and does not represent financial advice. 

• It’s based on the 2024/2025 tax year. 

• The law, tax rates and any allowances may change in the future. 

• The value of your investment will go up and down. It isn’t guaranteed, so you may get back less than you put in. 

Most of the activity described in this presentation is carried out by Legal & General Investment Management (referred to as LGIM), the investment management business of Legal & General. LGIM manages your funds and makes the day-to-day investment decisions. 

All our funds are managed by professional fund managers but some of the funds available to you are not managed by fund managers at Legal & General and LGIM. External fund managers may take a different approach to responsible investing. 

Throughout this presentation, we use companies as examples of the action we take. The issues highlighted are not exclusive to them. 

Slide 3 – Agenda: What are we going to cover today? 

The topic for today’s webinar is responsible investing. 

During this presentation, we’re going to look at: 

• what we mean by responsible investing. 

• Legal & General’s approach. 

• what it means for you and your savings. 

• where you can go to find out more.  

 Slide 4 - What we mean by responsible investing  

As a pension saver, you are an investor. When you put your money into your pension, it’s invested into one or more funds with the aim of helping your savings grow. Funds can be made up of a range of assets - assets can commonly include equities (company shares), bonds (loans to businesses and government), cash or property. 

There are many different factors that can be both a risk and an opportunity to the growth of your savings.  A responsible investing approach enables us to focus on a key area, which is the consideration of environmental, social or governance (ESG) issues.  

Slide 5 - What is responsible investing?  

ESG issues include things like climate change, fair work conditions, executive pay, supply chain management and impact on local communities.  

These issues are directly linked to your pension through the assets your pension is invested in, such as shares in companies. 

LGIM considers ESG issues as part of its decision-making process, for the funds it manages directly. As a global investor, LGIM aims to use its influence to encourage: 

• companies to integrate environmental, social and governance (ESG) factors into their culture and everyday thinking. 

• markets and regulators to create an environment in which good management of ESG factors is valued and supported. 

This approach helps LGIM to manage investment risks and opportunities and seek the best possible financial returns for our pension members. 

We’re now going to play you a short video to bring our approach to ESG to life. 

<play video: Environment Social Governance (ESG) | Legal & General (legalandgeneral.com) > 

ESG: What it is and why it matters to pensions 

You may have heard the term ESG linked to pensions. But what exactly is it and why does it matter to your retirement savings? 

ESG stands for Environmental, Social and Governance. Environmental relates to a company's impact on the planet. Social examines how a company treats its employees, communities, and customers. Governance focuses on a company's leadership structures, accountability and transparency.  

Along with interest rates, inflation or economic uncertainty, ESG practices are also an important thing to consider for pensions, particularly when it comes to company performance. 

Companies can be included in a pension’s investment mix through buying their shares or lending money to companies by buying their bonds. 

And, when it comes to ESG practices and companies, everything is connected. For example, a company’s business activities may have a negative impact on the environment. Or, a company could damage its reputation and lose profits by mis-treating its workers. So, ESG practices are important to not only company performance and potential pension value, but to wider society and the planet too.  

Our investment management business Legal & General Investment Management, referred to as LGIM, considers how the companies it invests in are managing ESG-related risks and opportunities.  

Including ESG in the investment process doesn’t mean that all companies in a pension fund are already fully sustainable. Unless it is a broad exclusion or impact fund, pension funds generally include a range of companies and sectors, for example oil and gas companies. However, through its role as a global investor, LGIM works with the companies it invests in, challenging them to become more sustainable and adopt better ESG practices.  

There are different ways that ESG can be included in a pension fund. To find out how, go to the Legal & General Workplace ESG Hub and read the Responsible Investing Fund Guide. More information on how LGIM engages with companies is available in the Active Ownership report, also found on the ESG Hub. 

<Video ends> 

Slide 6 – Climate change 

Let’s take a closer look at the E of ESG.  

Climate change is one of the defining issues of our time, as highlighted by the Secretary-General of the United Nations, António Guterres, in his closing statement at the UN Climate Change Conference COP28 in December 2023; 

"The world cannot afford delays, indecision, or half measures. 

It is essential to come together around real, practical and meaningful climate solutions that match the scale of the climate crisis." 

Climate change also carries risks to investments.  

Not only can extreme weather events like floods and fires affect companies’ profits, but high-polluting industries are facing increased competition from cleaner, cheaper energy sources. Climate change was LGIM’s top engagement (known as active ownership) topic of 2023 with 1,760 engagements focused on climate change issues.  

 Slide 7 - The journey to Net Zero  

Most of us are aware that carbon (CO2) emissions are accumulating in the earth’s atmosphere. These increased carbon emissions are causing global temperatures to increase and are changing the climate of our planet. 

We can help slow down global warming by making sure that what we release into the atmosphere in the form of planet-warming greenhouse gases (produced through human activity, industry, agriculture, energy and other activities) is balanced by the carbon our natural world can absorb through trees, soil, oceans and new technologies for carbon capture. 

Net zero is where what is released matches what is absorbed. 

The Paris Agreement often referred to as the Paris Accords or the Paris Climate Accords, is an international treaty on climate change. Adopted in 2015, the agreement covers climate change mitigation, adaptation, and finance.  

The Paris Agreement's long-term temperature goal is to keep the rise in mean global temperature to well below 2 °C above pre-industrial levels, and preferably limit the increase to 1.5 °C, recognising that this would substantially reduce the effects of climate change. Emissions should be reduced as soon as possible and reach net-zero by 2050.  

In support of the Paris Agreement, several funds within the Workplace pension range aim to lower carbon (decarbonisation) towards an end goal of net zero by 2050. This includes our main standard default investment options. You can find out more details on the particular funds’ goals and progress to date on the ‘Environment’ page of our ESG Hub.  

In addition to this, the LGIM Climate Impact Pledge was introduced in 2016 in response to the Paris Agreement. It is a targeted engagement programme that assesses approximately 5,000 companies worldwide – across 20 climate-critical sectors – on their climate commitments and efforts to limit carbon emissions (one of the key greenhouse gases) to net zero by 2050. LGIM also engages with a subset of these to influence and support them to reach this objective.  

More details on the funds that incorporate these approaches can be found on the Environment page of our ESG Hub, which you can also access by scanning the QR code 

Slide 8 - What our members say  

As part of our annual survey, released in June 2023, we asked 3,634 defined contribution workplace pension members on environment, social and governance investing.  Our respondents were split across generations and genders and across the UK and Ireland.   

In one of the toughest economic climates in decades, UK workers might be forgiven for being wary of having to pay more for anything. Yet our latest research suggests that most DC pension savers would be prepared to pay higher fees to see their pension funds supporting ‘green’ initiatives. 

• 78% of Gen Zers would pay higher pension fees to support net-zero targets. 

• 72% said they’d pay higher fees to invest in infrastructure that supported renewable energy sources. 

• 71% are concerned that climate change will push up food prices further. 

If you’d like to find out more, including the results from our most recent member survey, please go to our dedicated webpage or scan the QR code. 

Slide 9 – Legal & General’s approach  

LGIM's Investment and Stewardship teams engage with companies (those included within our internal funds that are managed by a Legal & General company) to ensure that they are managing environmental, social and governance (ESG) risks and opportunities, both short-term and longer-term.  

We refer to this as active ownership. 

So, how does active ownership influence Legal & General’s approach to investing? 

Slide 10 - Responsible investing and retirement savings 

LGIM may invest a part of a pension fund in companies, either through purchasing shares or lending money to companies by buying their bonds. Through purchasing shares in a range of companies, our investment management business, Legal & General Investment Management (LGIM) becomes a shareholder. This means that it can vote and engage on important issues, encouraging companies to do better on ESG issues. 

For example, LGIM can engage with a company over its environmental policies, challenge it on its board diversity or its record on workers’ rights. 

This could be through collaborative meetings, discussions with stakeholders and policymakers, making public statements, and exercising our voting rights as a shareholder.  

When LGIM invests in a company, there is an opportunity to make the business better, with the aim of having a more positive effect on your savings, society and the environment. 

This active ownership approach is relevant across our internal funds managed by Legal & General and LGIM.  External funds and fund managers may take a different approach to responsible investing and active ownership. 

Important: 

Please note that a responsible investing approach doesn't mean that all the companies in a fund are fully sustainable. Pension funds generally include a range of companies and sectors, for example oil and gas companies. However, through its active ownership approach, LGIM can engage for positive change. 

We’ll now play a short video about our 'Active ownership’ approach. 

<play video: Taking action | Legal & General (legalandgeneral.com) > 

Responsible investing for pensions - How a pension can challenge companies to behave more responsibly 

Did you know that by making monthly contributions into your pension plan, you could play a part in encouraging companies to improve their effect on the environment and society?  

This is done through an investment process known as active ownership. Our investment management business Legal & General Investment Management (referred to as LGIM) applies active ownership across all the funds managed by Legal & General and LGIM.  

Disclaimer text on screen: External fund managers may take a different approach to active ownership. 

If you haven’t chosen your own funds, your money will be automatically invested in the default investment option for your work’s pension plan, chosen by your employer.  

Here’s an example of how it works across the standard default investment options offered by Legal & General. 

Disclaimer text on screen: The standard default investment options used as an example are Target Date Funds, Multi-Asset Fund, Future World Multi-Asset Fund, and L&G Drawdown Lifestyle Profile. Your employer or the trustees of your pension scheme may have chosen a different default option. 

With the aim of helping pension savings grow, LGIM will invest a part of the standard default investment options in companies, either through purchasing shares or lending money to companies by buying their bonds. Through purchasing shares, LGIM becomes a shareholder in the companies it invests in and can influence positive change. 

A key way to do this is to consider how companies manage environmental, social and governance, or ESG, risks and opportunities. This includes issues such as climate change, fair work conditions, executive pay, supply chain management and impact on local communities.  

This is important because poor management of ESG factors may have a negative impact not only on the performance and longevity of a company – and therefore potentially your pension value – but on wider society, the planet and the economy.  

LGIM assesses how companies handle ESG risks and opportunities and how transparent they are in reporting them. Importantly, as a shareholder LGIM can engage and cast shareholder votes on important issues, challenging companies to do better.  For example, LGIM can challenge a company over its environmental policies, the level of its greenhouse gas emissions, the diversity of its board of directors, or its record on workers’ rights. 

So, your pension is working behind the scenes striving for positive change. 

More information on responsible investing and active ownership can be found on the Legal & General Workplace ESG Hub. You can also check the investment options available to you by logging into your online account. 

Disclaimer slide: 

The value of an investment and any income taken from it is not guaranteed and can go down as well as up, you may not get back the amount you originally invested. 

Legal & General Assurance Society Limited Registered in England and Wales No. 00166055 Registered office: One Coleman Street, London EC2R 5AA Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. 

<Video ends> 

Slide 11 – Taking Action: 2023 engagement in numbers  

This slide provides details of LGIM’s engagement with companies during 2023. Climate change and deforestation are examples of environmental engagement. Diversity highlights a key social topic and remuneration demonstrates a governance-related topic. 

ESG assessments and ongoing dialogue with and monitoring of companies isa fundamental aspect of our commitment to responsible investment. Engagement will be triggered in a variety of ways, such as a regular meeting with the companies; research and analysis of responsible investment themes and voting issues; general knowledge of the company; or a media article on the company that requires discussion. LGIM engages with board members, CEOs, Chairs and senior management, in addition to investor relations and other senior employees working in the issues relevant to the engagement topic.   

LGIM believes voting is also a powerful tool to help address issues that affect wider society and the planet - such as climate change and social inequality - and which could affect the value of our members’ pensions. If a company doesn’t meet our minimum expectations on ESG standards, LGIM will use its voice to send a strong message to the company board by exercising its voting rights as a shareholder. 

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

LGIM believes in driving positive change from within and that engaging with companies leads to better outcomes, rather than removing their investments at large scale (divestment). However, LGIM can stop investing or reduce its holdings in companies if they fail to meet minimum ESG standards expected and don’t demonstrate a commitment to change. 

Targeted exclusions can also be a very powerful tool. For certain activities, where engagement is considered to provide limited scope for change, where activities present investment risk and or where they are in breach of international conventions and treaties, LGIM may apply broad exclusion policies. Funds that incorporate minimum and broad exclusions are noted in our Responsible Investing overview which you’ll find in the ‘Your investment choices’ section of the ESG Hub. 

Slide 12 - Engagement in action  

LGIM believes engagement with consequences is the best way to deliver long-term, systemic change on a global scale. At the start of 2023, LGIM finalised its six ‘super themes’ for engagement. Here’s a summary of LGIM’s activity within each of these themes: 

1. Climate

• Under its Climate Impact Pledge, LGIM: 

• voted against the Chair of the Board (or next most senior director) at some 300 companies, based on its quantitative assessment, due to those companies not meeting our minimum standards. 

• directly engaged, in 2022/23, with more than 100 companies who it believes are ‘dial-movers’ on climate action in their sectors, given their size and potential to galvanise action. 

2. Nature

• In 2023, LGIM: 

• updated its Deforestation Policy and engaged with over 160 companies on the topic; this was the first year LGIM applied specific deforestation vote sanctions. 

• were involved in multiple engagements with the UK’s key water companies, their major shareholders and industry regulators. 

3. 3. People

• In 2023, LGIM: 

• completed its expanded engagement campaign on ethnic diversity and continued to engage with large-cap UK and US companies on the gender diversity of their executive leadership teams. 

• started a focused engagement campaign on the living wage with a clear escalation strategy to encourage 15 global food retailers to reduce income inequality within their operations and supply chains.  

• published its first Human Rights Policy (December 2023). 

4. Digitisation

• In 2023, LGIM:  

• published its expectations of companies on artificial intelligence (AI), with a focus on the governance aspects of AI, particularly how companies manage risks and opportunities, and improve transparency. 

• engaged with the four largest US tech firms (Alphabet*, Apple*, Meta* and Microsoft*) that are building AI systems as products. 

5. 5. Health

• During 2023, LGIM: 

• intensified its collaborative engagements on nutrition with multinational Nestlé*.  

• co-filed a resolution on antimicrobial resistance (AMR) that almost 20% of shareholders at McDonald’s* supported. 

6. 6. Governance

• In 2023, LGIM:  

• clarified its stance on UK and US pay in its Regional Executive Remuneration Policies. 

• opposed 52% (2022: 56%) of all management-proposed pay-related proposals, due to the companies not meeting our minimum standards for fair and appropriate long-term performance-based pay.  

For more information on this see the Active Ownership report in the ‘Taking action’ section on our ESG hub or scan the QR code. 

*For illustrative purposes only. Reference to a particular security is on a historic basis and does not mean that the security is currently held or will be held within an LGIM portfolio. The above information does not constitute a recommendation to buy or sell any security. 

Slide 13 – What it means for you and your savings  

So, what does this mean for you and the way in which your retirement savings are invested? 

Slide 14 - Your choices 

When you join your employer’s pension, there is a “default investment option” which is where your money is invested if you don’t make a different choice. (You can, of course, self-select any of the other funds or lifestyle profiles available to you.)  

You can find details of both the fund you are invested in and the range of other funds available by visiting your online account or your scheme website, or by scanning the QR code.  

You can change the funds that you are invested in by going to your online account. Any decision should be considered alongside your risk appetite, financial goals, how and when you intend to access your pension savings as well as your individual beliefs and values. 

Some investment options change where your savings are invested as you approach your retirement age, others don’t! So, it’s important to review where you are invested and to check that this is in line with your plans for retirement. 

Please be aware that the value of an investment and any income taken from it is not guaranteed and can go down as well as up, you may not get back the amount you originally invested. Different funds have different associated risks. Please read the relevant fund documentation before making any investment decisions.  

You may want to take financial advice before making any changes to your investments. You can find a local financial adviser at unbiased.co.uk or by scanning the QR code. Financial advisers usually charge for their service. 

Slide 15 – Our default investment options 

Elements of responsible investing are incorporated into each of our main defaults. 

These investment options include some or all of the following responsible investing elements: 

• Sustainable assets included in the overall investment mix, e.g. listed sustainable infrastructure or listed timberland.  

• Incorporates ESG considerations into investment decisions along with active ownership.   

• Minimum exclusions applied where LGIM believes the companies fail to meet minimum standards of globally accepted business practices.  

• A climate engagement programme – LGIM Climate Impact Pledge. 

• Decarbonisation commitments towards an end goal of net zero by 2050. 

• An ESG scoring approach that scores companies out of 100 and aims to invest more in higher-scoring companies. This is called tilting.  

You can find out more on the approaches and which funds apply which elements in our Responsible Investing overview, which is also available on the ESG hub. 

Please be aware that your employer - or, where applicable, the trustees of your scheme in conjunction with their investment advisers - may have chosen their own default investment option. 

We recognise that employers and members have different goals and attitudes when looking for the right pension investment for them. That’s why we offer a variety of pension funds with varying levels of responsible investing approaches incorporated.   

Slide 16 – Where you can find out more …  

You can find out more about ESG and how it relates to pensions on the Legal & General Workplace ESG Hub.  

You can find out more about the different options and funds in our Responsible Investing overview, which you can also access via the ‘your investment choices’ section of our ESG hub.  

If you’d like to review or change the funds you invest in, please log into your online account. 

Slide 17 - Thank you.  

To see which fund you are invested in, or if you’d like to review all the funds available to you or to change the funds you invest in, please log in to your online account. 

It’s easy to register if you haven’t already done so. All you’ll need is your customer reference number from your welcome letter or member certificate. You can also access our ESG hub via the QR code below. 

<ENDS> 

Legal & General (Portfolio Management Services) Limited. 
Registered in England and Wales No. 2457525. Registered office: One Coleman Street, London EC2R 5AA.  

We are authorised and regulated by the Financial Conduct Authority. 

Legal & General Assurance Society Limited 

Registered in England and Wales No.166055. Registered office: One Coleman Street, London EC2R 5AA.  

We are authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. 

Trust-Based Occupational Pension Schemes are regulated by The Pensions Regulator. 

Administrator: Legal & General Assurance Society Limited. Registered in England and Wales No. 00166055. Registered office: One Coleman Street, London EC2R 5AA. 

Legal & General Assurance Society are authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. However, the administration of occupational pension schemes is not regulated by the FCA or PRA.