Responsible investing webinar

An introduction to responsible investing

Welcome and introductions.

Housekeeping for the webinar.

Important information

 Risk warnings:

• This is a general education presentation and does not represent financial advice
• It’s based on the 2022/2023 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 (LGIM), a division 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 Legal & General. 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.

Given all the recent economic and political uncertainty, we’ve created a dedicated ‘Managing your savings in uncertain times’ webpage, where you can find out more information about what this might mean for your retirement savings, which you can access using the QR code.

What are we going to cover today?

The topic for today’s webinar is responsible investment.

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

What is responsible investing?

As a pension saver, you are an investor. There are many different factors that pose both a risk and an opportunity to the growth of your savings. A responsible investing approach focuses on a key area, which is the consideration of environmental, social or governance (ESG) issues.

Consideration of environmental, social and governance (ESG) factors – such as climate change, diversity and inclusion and corporate behaviour – is important to manage risks, unearth opportunities and seek to strengthen long-term financial returns for our members.

If your pension fund includes company shares, also known as equities, all - or a proportion of it - will be invested in a range of companies. We believe companies that look after their employees, manage their effect on the environment and have robust governance should be in a better position to provide sustainable long-term returns.

Examples of ESG factors

Environmental issues include:

• Carbon emissions
• Intensive farming and agriculture to produce meat and crops
• Removing forests and trees to make space for other land uses

Did you know

In the past century alone, we have already seen global temperatures increase by about 1° Celsius due to environmental issues, which can have a harmful effect on the world around us.

Social issues include:

• Human rights
• Inequality around health, sexuality, gender, physical ability, age, ethnic or social background
• Data security

Governance issues include:

• Organisations that fail to keep proper track of their accounts
• A lack of diversity on governing boards which can lead to inward thinking that can stifle innovation
• No robust oversight of the makeup of a senior team which may lead to bad decisions being made

Climate change

Climate change is one of the defining issues of our time and a financially material risk.

In the words of our CEO Nigel Wilson, “Avoiding a climate catastrophe is our greatest global priority. The science is clear, and we can see the change with our own eyes.”

The journey to Net Zero

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

We can 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, recognizing that this would substantially reduce the effects of climate change. Emissions should be reduced as soon as possible and reach net-zero by 2050.

But why do we need to consider climate change in relation to pensions? Climate change 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.

What our members say

As part of our annual survey, released in May 2022, we asked 4,500 adults in the UK paying into a workplace pension what they thought about responsible investing.  Our respondents were split across generations and genders and across the UK and Ireland. 

87% of respondents want their pension to have a net zero target.

57% said that climate change will have a longer-term impact on the UK Economy than COVID-19.

84% want to stop investing in fossil fuels.

Only 12% of Boomers born between 1946 and 1964 would increase contributions because of knowing more about how their provider was managing their investor rights.

80% of Gen X born between 1965 and 1980 would be more involved with their pension if they knew it was encouraging companies to have a positive impact.

53% of Millennials born between 1981 and 1996 only became aware of what 'net zero' is due to publicity around COP26.

81% of Gen Z (those born between 1997 and 2012) were willing to pay more for a pension with net zero carbon emissions.

Responsible investing and your retirement savings

Your retirement savings could be invested in company shares, also known as equities.

By investing in a range of companies, our investment management business, Legal & General Investment Management (LGIM) becomes a shareholder. This means they can vote and engage on important issues, continuously challenging companies to do better on ESG issues.

For example, LGIM can engage with a company to change their environmental policy, increase their board diversity or improve workers’ rights.

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

Every time we invest in a company, there is an opportunity to make the business better, with the aim of having a more positive impact on your savings, society and the environment.

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

Our actions

The Legal & General Investment Management Stewardship and Investment teams engage with companies to address company-specific and market-wide risks and opportunities.  The teams exercise our voting rights globally, holding companies to account.  At the same time, the teams work with regulators, policy makers and our peers to tackle systemic issues.

Investment stewardship means the responsible oversight of the savings which our clients trust us to look after, to generate sustainable benefits for the economy, the environment and society.

In 2021, Legal & General Investment Management cast over 180,000 votes at more than 15,000 meetings as we continue to strive for positive progress to support the long-term sustainability of the economy, environment and society at large.

Engagement in action

Now we’ll tell you about some real-life examples of how we’ve engaged with companies on your behalf.  The issues highlighted are not exclusive to them.

We’ve been engaging with Proctor & Gamble on governance and climate.

In 2020, we engaged with consumer goods giant Proctor & Gamble and supported a shareholder proposal to eliminate deforestation from its supply chain. We also encouraged the company to increase the percentage of sustainably certified pulp. As our engagement continued throughout 2021, we were pleased that they agreed to many of our recommendations, which should help the company onto a pathway to a forest-friendly future.

On the theme of deforestation, we’ve notified the Brazilian government, through investor calls with officials, about our concerns over deforestation and its links with supply chains. The fragility of environmental protection of the Amazon is a great worry, not only for the investor community, but for the world.

Going forward, deforestation will be a continuing area of focus for us, both with companies and governments.

We’ve also been engaging with Experian on financial and social inclusion 

We believe companies like Experian have a really important role to play in helping us achieve greater social and financial inclusion through education and financial support.

We have engaged with the company many times in 2021 and are pleased to see that they’ve made several improvements, including better reporting around societal and community investment, and setting aside increased funds to improve financial livelihoods. This includes the roll-out of systems where positive data allows the consumer to improve their credit score, and which are designed to be easier for people to access.

Experian also launched the United for Financial Health project as part of its social innovation fund, to help educate and drive action for those most vulnerable in our society. This includes projects to help small businesses and young people build financial literacy, as well as supporting minority groups.

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. You can change the funds that you are invested in by going to your online account.

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. Financial advisers usually charge for their service.

Our default investment options

Legal & General has four main standard default investment options:

• Target Date Funds
• Multi-Asset Fund
• Future World Multi-Asset Fund
• Legal & General Drawdown Lifestyle

These investment options consider their impact on the natural world and human society, as well as ensuring good business practices, and include some or all of the elements shown on the slide:

• Positive impact investments, e.g. listed sustainable infrastructure or sustainable bonds
• Active ownership and voting
• Minimum company exclusions
• Our innovative engagement programme – LGIM Climate Impact Pledge
• Decarbonisation targets towards an end goal of Net Zero by 2050
• ESG scoring and tilting

All our standard auto-enrolment DC defaults now benefit from a ‘minimum standards’ exclusion policy on our holdings in company shares. This means that we will no longer invest in companies involved in controversial weapons, coal mining exclusively for energy production, and those which violate environmental sustainability and social responsibility standards, as defined by the United Nations Global Compact, a global initiative.  

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.

Our range of investment options

We recognise that employers and members may have different goals and attitudes when selecting the most appropriate investment strategy for their retirement savings. That’s why we offer a variety of investment options incorporating different levels of responsible investing.

Some of our investment funds feature elements of responsible investing to cater for particular values and beliefs.

Across our range of investment options, we have funds that:

• invest more in companies that score more highly in terms of different ESG metrics
• exclude companies with activities in relation to fossil fuels
• are aligned to UN sustainable development goals
• exclude (or include) sectors or companies on moral or religious grounds

Please note that different funds incorporate different levels of responsible investing.

Discover more about responsible investing

You can discover more about responsible investing and which funds incorporate the elements mentioned before by checking out the following resources:

• ESG hub
• Responsible investing guide
• Manage Your Account

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 secure 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.