LGIM Unveils Climate Ratings for 1,000 Companies, Calls Out Laggards – Barron’s

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Legal General Investment Management, one of Europe’s largest asset managers, released its climate ratings Wednesday for 1,000 companies whose shares it owns—and called out five U.S. companies, including Exxon Mobil, for being “climate laggards.”

Since the 2016 Paris Agreement on climate change, the investment manager has been aggressive in pushing companies to improve their environmental practices, boost disclosures, adopt meaningful emissions targets—including for thorny Scope 3 emissions, or indirect emissions that occur in the value chain of the company, such as emissions from employee commuting.

When the companies don’t respond in a satisfactory way, the investment manager will divest from the companies in various discretionary funds, including its sustainable funds. In cases where LGIM cannot divest, such as in index funds, it will vote against the board chairman and directors at the company’s annual meeting.

About a third of LGIM’s $1.5 trillion in assets under management is in index funds.

Apart from Exxon (ticker: XOM), companies that LGIM deemed laggards in the U.S. this year included Hormel Foods (HRL), Kroger (KR), Sysco (SYY), and MetLife (MET).

“If you have a red light, it triggers a vote against your chairman. It’s a signaling effect,” says John Hoeppner, head of U.S. stewardship and sustainable investments at LGIM America.

Hormel and Kroger are on the laggards list because of their lack of zero-deforestation commitments and Scope 3 disclosures, says Hoeppner. Exxon also suffered from the lack of Scope 3 disclosures and operational emissions targets. Meanwhile, MetLife had poor climate risk disclosure and no investment restrictions on high-emitting sectors, he added.

Exxon, Hormel, and Sysco didn’t respond to requests for comment.

In an email to Barron’s, a Kroger spokesperson said the company “is committed to protecting people and our planet by advancing positive change in our company and our communities,” pointing to the retailer’s greenhouse-gas reporting and citing its new 30% greenhouse-gas reduction goal by 2030, and its no-deforestation commitment for its Our Brands products.

A MetLife spokesman said in an email that the insurer is “constantly looking at new ways to make MetLife an even more environmentally sustainable company” and pointed to MetLife’s high grade on the CDP Investor Report, MetLife’s commitment to making no new investments in miners or utilities deriving 25% or more of their revenue from thermal coal, and its list of 11 new environmental sustainability targets for 2030. “We continue to engage with LGIM,” he added.

In addition, LGIM will make its assessments public for 1,000 companies that are responsible for more than 60% of greenhouse gas emissions from publicly traded companies. For each of the companies, it has assigned a “traffic light” score—red, green, or yellow—depicting its assessment of the company’s environmental practices.

LGIM says that in general, climate scores have improved across most sectors. The sector that scored highest was utilities. Regionally, some of the highest improvements from last year are in Australia, Japan, and South Korea, LGIM said.

“All of our targets [reflect] our very strong view that when you think about climate risk, you need to focus on minimum standards,” says Hoeppner. “We’re trying to signal to the market what that floor is.”

LGIM finds itself in good company. More companies have announced targets for net-zero emissions. China, which generates about 30% of global carbon emissions, has pledged to achieve net-zero emissions by 2060. The European Union previously committed to carbon neutrality by 2050.

This week, an influential group of investors, including the California Public Employees’ Retirement System, known as Calpers, and German insurer Allianz, unveiled a plan to set targets to lower their portfolio carbon emissions by as much as 29% over the next five years.

Climate risk is a core concern for investors and corporate boards, according to a recent study by the Ira M. Millstein Center for Global Markets and Corporate Ownership at Columbia Law School. More than 60% of directors and 70% of investors surveyed indicated that climate risk is impacting their business today, and 75% of respondents believed they have an ethical obligation to incorporate climate risk into their strategy.

There is a regional bias, according to the Millstein research: Some 88% European investors think that climate risk reporting is at least as important as financial reporting; only 67% of North American investors agree. That will likely change in the U.S., where ESG (environmental, social, and governance) investing is rapidly gaining traction. Indeed, with companies improving their disclosures, people increasingly trust how companies communicate their sustainability performance, according to a recent survey by Global Reporting Initiative and GlobeScan.

In a statement, Chris Coulter, CEO of GlobeScan, said: “Over the course of 20-plus years of global polling, we have seen a sea change in expectations for corporate transparency. The findings from this year’s survey suggest that companies are learning how to deliver and are being recognized for their efforts…. Accurate reporting has become foundational for any effective sustainability strategy.”

Write to Leslie P. Norton at leslie.norton@barrons.com

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