Legal and General; Climate change can seriously damage your wealth

Legal and General Investment (LGIM)management has dropped out of investment and sold stocks in a number of companies, which are refusing to engage with them over preparation for climate change. These include ExxonMobil, Hormel Foods, Korean Electric Power, Kroger and Metlife and LGIM quite simply won’t hold their stock.

The two which affect us at Rethink Energy are ExxonMobil and Korean Electric Power (KEP). ExxonMobil has made it perfectly clear that it will not be transparent about what it spends its money on, and not bow to climate change pressure from investors. It has funded climate change denial research and has failed to mitigate its position by taking a strong position in renewables or battery storage.

KEP has kept South Korea on the path of non-renewables, and operates 21 nuclear power plants at a time when everyone remains nervous from the Fukushima disaster in Japan. It has ignored attempts to build floating wind farms off its coast, and left that to other local companies such as the Korea National Oil Corporation to pioneer. It runs much of the rest of its electrical generation using coal, oil, some hydro and 24 LNG combined cycle units.

LGIM initially divested from some stocks from its Future World fund initially in 2016 and now each year names and fames the ones whose strategy makes sense in the context of climate change, and publicly shames others who do not engage.

After it divests it “engages” with these companies to try to convince them that they should open up and acknowledge climate change within their strategy.

The issues seems to be that some people in the oil industry still don’t seem to understand that climate change will crash their share price as it becomes apparent that oil as an asset is simply, over a 29 year period, going away.

It’s not that LGIM is applying strict criteria – this is not a case of meeting some IPCC target, while oil companies bluster that it simply can’t be done – this is about what could happen to your share price if you do not take the climate issue at all seriously.

LGIM has been doing this for a while, and last year the biggest investment firm in Blackrock, did something similar – this is about going to the trouble of having a clear position on climate – report your CO2 emissions, and those of your products, give an investment strategy that sees you out of these markets in plenty of time, and in a best case scenario, reward your management team for orchestrating and articulating that to the investment community and making it happen.

What LCIM asks from its divested investments is to engage with its Climate Pledge and Consequences program and explain their position. It claims that there have been improvements in average scores across all sectors because of the pressure this applies.

This is in addition to companies divested last time, including the China Construction Bank, Rosneft Oil, Japan Post Holdings, Subaru, Loblaw and Sysco Corporation – Legal and General say they are all remain engaged but have yet to take the substantive actions to warrant re-instatement.

This type of occlusion will not matter if it is one large investor, but once it is many, and as the social awareness of climate change becomes more urgent, and the requirements stricter, we suspect this will become a major source of investment pressure on these companies. Loss of profits should be enough, but that will come much later.

It should almost certainly bring electricity and oil firms to the table wanting to buy into renewables investments, and trying to replace ailing oil investments with them. Sure oil and gas are not dead yet, but they have nowhere to go, and they are on death row, no matter what the owners do. This jostling from investors helps them begin to head in the right direction.

In a statement attributed to Catherine Ogden, Manager, Sustainability and Responsible Investment at LGIM, she called for “stress-tests against a wide range of scenarios, recognizing potential disruptions from renewable energy, electric vehicles, carbon taxes and constraints on plastic usage. The results of such tests should be made public, in our view, so they can be judged against targets set under the Paris Agreement to limit global temperature increases to ‘well below’ two degrees Celsius above pre-industrial levels.

And she added, “Still, we are still concerned to see automakers support the Paris Agreement while remaining members of trade groups that, through their lobbying, seek to downplay the health and environmental impact of emissions. We have therefore supported resolutions calling for transparency on political lobbying at Ford and GM.”

At Rethink Energy we still feel that Ford and GM have been significantly late movers in the shift to battery power and EVs, and they risk disappearing as brands entirely, swamped by a plethora of new firms coming out of China – but even now it’s not too late.

Later in the week it was added to this story that investors managing more than $34 trillion in assets, about half the world’s invested capital are demanding that governments take more urgent action on climate change.

Reuters had sight of these letters from  477 investors and said it stressed “the urgency of decisive action” on climate change to achieve the Paris Agreement targets.

The letter comes ahead of a June 28-29 G20 summit in Japan and as United Nations Secretary-General Antonio Guterres urges countries to back more ambitious climate goals.