Legal & General's investment arm is right to demand action from big companies on climate change

Legal & General Investment Management (LGIM) promising concrete measures to back a climate change action plan almost had me thinking Lego’s UniKitty had transported me to La La Land while I slept.

I mean, a big City investor recognising that it is a part of society, has a role to play in it beyond gobbling up dividends, and showing a willingness to use its voting clout to improve it? It’s not something you expect to see happening in a backward looking modern Britain whose Government is intent on burying its citizens under a pile of industrial Brexit slag.

So I had to pinch myself a couple of times upon reading it, and then go and sit in a dark room before reading it again. At that point it became clear that while I was definitely not in La La Land, LGIM's announcement could represent something rather progressive.

The fund manager actually introduced what it called its “Climate Impact Pledge” in November 2016. The stated aim was to push companies into addressing climate change and accelerating the transition to a low-carbon economy. So far so fluffy.

Following its publication LGIM says it assessed and ranked 84 of the world’s largest businesses, which it identified as pivotal in meeting the goals of the Paris Climate Accords, against more than 50 indicators.

Letters were sent sent out, drawing a response from nearly three quarters of them. They were followed up with meetings.

LGIM says it believes these at least contributed to “a number of positive moves”.

It also identifies as “leaders” Nestle, French bank BNP Paribas, Spanish utility Iberdrola and, perhaps surprisingly, oil major Total (for, we are told, putting climate compliance at the heart of its strategy).

It is possible that environmental groups might have some quibbles with those choices.

However, the fund manager, importantly, hasn’t shied away from identifying laggards, publishing a naughty list made up of the China Construction Bank, Russia’s Rosneft Oil, Japan Post Holdings, Occidental Petroleum, Dominion Energy, Subaru, Loblaw & Sysco Corporation.

Significantly it has stated that it will “vote against the re-election of the chair at those companies, across LGIM’s complete range of equity funds”.

Some of those listed might very well say “so what?”. You can probably guess which.

But L&G is a big, blue chip investor, and lots of big blue chip companies get discomforted when institutions like it consistently vote against their motions at AGMs, particularly when it comes to issues such as the election of chairs.

So this is the sort of thing that might force one or two of them to at least think about what they’re doing. The effect will be amplified if other big investors take up the cudgels.

They should do. Ultimately what LGIM is doing isn’t a matter of it wanting to be seen as cuddly. It is motivated by self interest, and the interests of those who invest with it.

Climate change is perhaps the biggest issue faced by the world today. It’s economic impacts will be far reaching and damaging.

Big investors like LGIM could play an important role in combatting it, and mitigating these. If it can force changes in corporate behaviour while political elites are dithering, so much the better. Go get ‘em UniKitty.