L&G puts AIG on the naughty step over ‘insufficient’ climate change action

American International Group is a $44bn (£31bn) giant, one of the world’s largest insurance businesses, the 173rd largest company in the S&P 500 index and is a brand, thanks to its past shirt sponsorship of Manchester United, known to millions.

It is also, as of today, a company in which many clients of Legal & General Investment Management will no longer be invested.

AIG is the highest profile of four companies in which LGIM, the UK’s biggest asset manager with £1.3trn worth of funds under management, has chosen to divest due to what it described as “insufficient action to address the risks posed by climate change”.

Image: LGIM is the UK’s biggest asset manager with £1.3trn worth of funds under management

AIG declined to comment when contacted by Sky News

The other three are Industrial and Commercial Bank of China, one of the country’s biggest lenders; China Mengniu Dairy, one of the country’s biggest milk, yogurt and dairy producers and PPL Corporation, the Pennsylvania-based power utility that in March agreed to sell the distribution company Western Power Generation to National Grid.


Mengniu told the Reuters news agency that it “proactively supports the goal to achieve carbon neutrality by 2060”.

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LGIM’s move is a dramatic one because most asset management companies prefer to try and influence change by engaging with the businesses in which they invest.

Selling their holdings in such businesses is usually only a last resort.

LGIM said the four had provided “unsatisfactory responses to engagement and/or breaches of ‘red lines’ around coal involvement, carbon disclosures or deforestation”.

Image: AIG is the most high profile company from which LGIM is divesting

They will be dropped from actively-run LGIM funds, which have assets totalling £58bn, and all funds run by LGIM on behalf of workers who have been automatically enrolled in employers’ workplace pension scheme.

The quartet join nine other companies who have been previously excluded by LGIM for similar failings including MetLife, the US insurer; Exxon Mobil and Rosneft, the oil and gas giants; Loblaw, the Canadian grocery giant and Hormel, the US food manufacturer famous for brands including Spam and Planter’s peanuts.

But LGIM made clear these companies need not remain on the naughty step indefinitely.

It today reinstated Kroger, the US supermarket company, following “improvements in its deforestation policies and disclosure, as well as efforts to promote plant-based products which have a lower climate impact”.

Others reinstated in previous years include the Japanese carmaker Subaru and the US oil giant Occidental Petroleum.

Michelle Scrimgeour, chief executive of LGIM, said: “Climate change is one of the most critical sustainability issues we face and we fully support efforts to align the global financial system with a pathway well below 2C.

“We have made a strong commitment to push forward this agenda across the different parts of the investment chain, from our engagement with companies and policymakers through to our own investment process and LGIM’s own commitment to net zero.

“Progress cannot be made by acting in isolation and we, as investors, have a real role to play in the responsible allocation of capital and acting as stewards to our investee companies to encourage greater progress to meet our overall sustainability goals.”

Image: Mengniu is one of China’s biggest dairy producers

LGIM’s move serves to emphasise the growing importance that fund managers are placing on climate change.

Larry Fink, chief executive of the world’s biggest fund manager Blackrock, said in January this year that it would in future be putting issues of environmental sustainability and impact at the heart of its decision-making.

He added: “No issue ranks higher than climate change on our clients lists of priorities.”

This increased focus on climate change has not spared even the biggest of corporates.

Blackrock and other large institutional fund managers, including Federated Hermes, last month supported two shareholder resolutions that would have required Berkshire Hathaway – the conglomerate headed by the billionaire investor Warren Buffett – to publish disclosures on how it manages climate risk across its numerous businesses.

The proposals, described by Mr Buffett as “asinine”, were defeated at Berkshire Hathaway’s annual meeting but were, nonetheless, supported by a quarter of shareholders.

Blackrock was also among fund managers that last month supported Engine No 1, a sustainability-focused activist investor, in its successful push to get three of its nominees elected to the board of Exxon Mobil.

There is still a degree of scepticism about the motivation of these fund managers.

Image: US supermarket company Kroger has been allowed to come off the naughty step

The vast majority of the money managed by Blackrock and LGIM is “passive” in the jargon: in other words, it is invested in tracker funds that simply seek to replicate the benchmark or index that they are tracking.

As such, the fund managers are not paid for the performance of those funds, but simply for the volume of the funds that they have under management.

To that end, with pension fund trustees increasingly focused on tackling climate change, it makes good business sense for the fund managers to follow the money and to place climate change and sustainability at the heart of what they do.

In fairness to LGIM, it is devoting a serious amount of time and effort to this.

It last year committed to expanding its engagement to 1,000 global companies, in 15 climate-critical sectors, that it has identified as being responsible for more than half of greenhouse-gas emissions from listed companies.

Image: Blackrock boss Larry Fink has also stressed the importance of climate change

In its annual Climate Impact Pledge report published today, the first under this toughened approach, it revealed it had sanctioned 130 companies in shareholder votes in this year’s AGM season for failing to meet its minimum climate change standards.

Those standards include having board members with responsibility for climate issues, comprehensive carbon disclosures and greenhouse gas reduction programmes.

For more than a quarter of a century, where there has been controversy, the annual general meetings of companies have tended to be dominated by rows over executive pay.

That remains a hot topic.

However, during the next 25 years, those meetings are just as likely – if not more so – to be dominated by rows over climate change policy.