Major UK Asset Manager Divests from Insurer AIG over Climate Policies

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Legal & General Investment Management will sell holdings in four companies including U.S insurer American International Group Inc. after deeming they’re making insufficient progress on addressing climate change risks.

The UK asset manager said in a statement on Tuesday it will also divest investments in Industrial & Commercial Bank of China Ltd., Pennsylvania-based utility PPL Corp. and China Mengniu Dairy Co. The companies either provided “unsatisfactory responses” to LGIM’s climate questions or breached “‘red lines’ around coal involvement, carbon disclosures or deforestation,” it said.

Climate change is a pressing concern for money managers: the physical impacts of global warming, such as extreme heat and rising seas, as well as the possibility of a rapid and chaotic transition away from fossil fuels, pose significant risks to investors. That’s leading investment firms to apply greater pressure on the companies they own to cut emissions and prepare for a low carbon future.

“A lot of daylight is opening up between leaders and laggards,” said Yasmine Svan, senior sustainability analyst at LGIM. “Climate change is material and a key risk. Getting on a net zero by 2050 pathway is the safest outcome for clients.”

Latest Action

The latest action from Legal & General Group Plc’s investment arm comes after it said in October it would engage on climate issues with over 1,000 companies that are together responsible for more than 60% of the greenhouse gas emissions produced by publicly traded companies. By dropping the four companies, the asset manager is following through on its threat to sell holdings if the corporations fall short of its minimum standards, including a comprehensive disclosure of emissions. LGIM has said it may also vote against companies’ management.

LGIM is selling its stake in AIG due to the insurer’s lack of policies on excluding thermal coal insurance and because it has yet to disclose figures on the amount of emissions it finances, measures LGIM considers to be a minimum standard for the sector, said Svan. Industrial and Commercial Bank of China will also be dropped because of its approach to thermal coal, she said.

The British money manager also reinstated a company it had previously divested. U.S. food retailer Kroger Co. was added back following improvements in its deforestation policies and disclosure, as well as efforts to promote plant-based products that have lower climate impact. ICBC’s chief economist said last month the bank will “establish a road map and timeline for the gradual withdrawal of coal financing,” according to the South China Morning Post.

Fund Universe

While LGIM manages a total of 1.3 trillion pounds ($1.8 trillion), its climate change engagement and divestment approach only applies to funds with 58 billion pounds in assets. Svan said the approach is applied for funds where LGIM is “contractually able to divest” and does not apply to most index funds where LGIM has to follow the composition of the benchmark.

“Each of the companies in which we invest on our clients’ behalf has many stakeholders beyond us as asset managers, including its employees and suppliers,” LGIM Chief Executive Officer Michelle Scrimgeour said in a statement. “Climate change will affect every single one of these stakeholders, not least given its growing financial materiality, so we must use our influence as shareholders to raise standards across the entire market for the benefit of all.”

Photograph: AIG headquarters in New York. Photo credit: Michael Nagle/Bloomberg.